By Joann Muller; Forbes ~ Nov 05, 2010

There’s a certain group of people — probably a very large group — that is still angry over the Obama administration’s decision to bail out General Motors with taxpayer loans. Many others might be nursing a grudge against GM because of a lousy car they owned 20 years ago that left them stranded on the side of a freeway. Such anger is understandable. But when picking stocks, emotion shouldn’t be one of the selection criteria.

It’s time to bury the hatchet and invest in GM.

Simply put, GM is poised to make a lot of money over the next decade. And with its initial public stock offering priced between $26 and $29 per share, GM shares are cheap, most analysts agree.

Morningstar automotive analyst David Whiston, for example, thinks GM is worth $44 a share, after accounting for a planned 3-for-1 stock split. He’s extremely bullish on GM, partly because he see a huge recovery in the auto industry ahead. Car sales have been running at depression levels, and pent-up demand is about to burst, he says. “It’s going to snap back; it’s just a question of when.” Whiston is forecasting 2011 sales of 13 million vehicles (up from about 12 million this year) and then a huge increase in 2013, to 18.5 million vehicles. He figures a normal sales rate is between 16 million and 17 million.

If GM can break even at 10.5 million to 11 million vehicles, Whiston says, “GM will be printing money as vehicle demand recovers.” In fact, he figures GM’s operating margin could peak at 11% in 2012, if his 18.5 million sales forecast is right. Such margins are practically unheard of in the auto industry (except maybe at Porsche in its heydey).

So what’s the bull case for buying GM? The company’s cost base was drastically reduced in bankruptcy, for one thing. By setting up a union-controlled trust fund for retiree health care costs, for instance, GM saves $3 billion a year. Its vehicles are also vastly improved. Cars like the Buick LaCrosse, for instance, are selling for thousands more than predecessor models. That (along with a clean balance sheet) helps the company stay profitable even when sales decline. Plus, GM sells 70% of its vehicles outside the United States, and enjoys a strong market position in fast-growing markets like China and Brazil.

Why might you avoid the shares? The biggest unknown is the timing of the industry recovery. Car sales could bump along at depressed levels for a while. Another worry is next year’s contract talks with the United Auto Workers union, which is already making noise about trying to reinstate raises and benefits given up during bankruptcy. GM can’t afford to backslide now that it’s gotten its labor costs under control. Meanwhile, the competition is getting tougher. Ford’s on a roll, and Volkswagen and Hyundai have big growth plans in the United States. GM’s senior management is mostly new to the auto industry so they’re on a sharp learning curve.

And then there’s consumer sentiment. Some people just won’t consider a GM vehicle because of their anger over GM receiving taxpayer loans. That would be a shame. GM is making some really good cars these days.