A massive infrastructure bill could be just what GM investors need

Mary Barra, Chairman and CEO of the General Motors Company attends the annual meeting of the World Economic Forum (WEF) in Davos, Switzerland, January 17, 2017.

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Mary Barra, Chairman and CEO of the General Motors Company attends the annual meeting of the World Economic Forum (WEF) in Davos, Switzerland, January 17, 2017.
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Ruben Sprich/Reuters

  • General Motors’ stock hasn’t had a good year.
  • That may change on account of Trump’s infrastructure bill.
  • The bill could create higher demand for GM vehicle.
  • It could also add jobs, and subsequently lift disposable incomes to some degree.

It may be time to buy General Motors, Morgan Stanley analyst Adam Jonas wrote in a note to clients.

GM stock has been hit this year, down 9% year-to-date. Shares dropped sharply on President Trump’s first mention of steel and aluminum tariffs in early March, and continued their slide for weeks after that.

Meanwhile, Trump is planning an infrastructure spending bill, which Jonas estimates would act as a tailwind for GM.

“Our decision to upgrade GM is driven by our study of US infrastructure,” Jonas wrote. He raised his price target from $45 a share to $48. Shares are hovering around $38 Monday. Morgan Stanley economists estimate infrastructure spending to total roughly $2.4 trillion over 10 years, an amount that would be great news for automakers.

“Greater long-term infrastructure spending typically coincides with increased pickup sales to complete the associated projects,” the note said.

The spending would have a broader economic impact, which would also serve to boost GM’s sales. “Those projects require workers, who will also likely benefit from heightened disposable personal income, potentially further increasing pickup sales,” the note wrote.

Jonas believes that, since GM has a significant share of the US auto industry, the uptick in sales across the industry stands to benefit GM.

“Each 10% move in NA pickup production can be as much as 14% accretive to GM’s 2019 EPS and 12% accretive to GM’s 2018 EPS, adding $0.69 to EPS.”

Here’s Morgan Stanley’s graphic on the infrastructure bill’s impact on demand for auto’s.

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Morgan Stanley Research

GM is up 6% in the past week.

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Markets Insider