Fam Wencong, Kenneth

My Diary

Portfolio Changes

Published: Sunday, February 23, 2020

Singapore released its 2020 budget a few days ago. 1 point highlighted in our 2020 budget signals to me that I should add an electric car manufacturer to my 2020 portfolio.

An electric future – Additional incentives to encourage the use of more environmentally-friendly vehicles.

Singapore plans to have all vehicles run on cleaner energy by 2040. There will be a number of measures to make this happen: For example, an early adoption incentive will be introduced to reward those who buy fully electric cars and taxis.

The authorities are also looking to roll out way more charging points, with a target of up to 28,000 chargers at public car parks islandwide by 2030, up from the current 1,600 points.

Picking out the winners and losers of an electric race will be hard but it also seems from the news that most car manufacturers are moving towards an electric future. Could this be a win-win for the industry? To play safe, I will be choosing 1 of the largest automakers in the United States to add to my portfolio, General Motors; the other largest automakers being Ford Motor and Fiat Chrysler.

Valuing GM

I do expect General Motor to spend money on R&D to ramp up its electric future in the coming years. General Motors’s EPS for the twelve months ending December 31, 2019 was $4.57, a 17.36% decline year-over-year. To simplify my calculations, I will still be using the Gordon Growth Model. I expect the perpetual growth rate of General Motor’s EPS to be at 2%. This leads us to the formula below:

Fair Value= 4.57/(0.08-0.02)

Target price of $76.2. Will be opening US$250 worth of CFDs.