Is General Motors Well-Positioned for the Future?

With shares of General Motors (NYSE:GM) trading around $37, is GM an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

General Motors designs, manufactures, and markets cars, crossovers, trucks, and automobile parts worldwide. The company markets its vehicles primarily under the Buick, Cadillac, Chevrolet, GMC, Opel, Holden, and Vauxhall brand names, as well as under the Alpheon, Jiefang, Baojun, and Wuling brand names. It sells cars and trucks to dealers for consumer retail sales, as well as to fleet customers in daily rental car companies, commercial fleet customers, leasing companies, and governments.

Employees have returned to work at a General Motors metal-stamping plant in Indiana following a chemical explosion that killed a contractor and injured several others. GM spokeswoman Stephanie Jentgen said the Marion plant’s first-shift employees reported for work Wednesday morning at the plant about 60 miles northeast of Indianapolis. The plant was evacuated following Tuesday’s explosion involving a tank of chlorine dioxide that killed 48-year-old contractor James L. Gibson. Jentgen says four workers injured in the blast were held for observation at a local hospital but have been released. She says an investigation into what caused the explosion is underway.

T = Technicals on the Stock Chart Are Strong

General Motors stock has struggled to make positive progress in the past several years. However, the stock is currently surging higher and looks poised to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, General Motors is trading above its rising key averages, which signals neutral to bullish price action in the near-term.

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of General Motors options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

General Motors options

23.43%

30%

28%

What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

August Options

Flat

Average

September Options

Flat

Average

As of Wednesday, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on General Motors stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for General Motors look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

-89.66%

5.56%

-49.44%

-16.67%

Revenue Growth (Y-O-Y)

1.44%

3.05%

3.72%

3.88%

Earnings Reaction

-0.63%

-0.02%

3.24%

-1.1%

General Motors has seen decreasing earnings and increasing revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about General Motors recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has General Motors stock done relative to its peers – Ford Motor (NYSE:F), Toyota Motor (NYSE:TM), and Tesla Motors (NASDAQ:TSLA) — and sector?

General Motors

Ford Motor

Toyota Motor

Tesla Motors

Sector

Year-to-Date Return

-7.65%

11.5%

-0.18%

54.3%

2.22%

General Motors has been a poor relative performer, year-to-date.

Conclusion

General Motors continues to change its business as it looks to entice companies and consumers with its new and improved vehicles. Employees have returned to work at a General Motors metal-stamping plant in Indiana following a chemical explosion that killed a contractor and injured several others. The stock has struggled to make positive progress in the past several years but is currently surging higher. Over the last four quarters, earnings have been decreasing while revenues have been increasing, which has produced conflicting feelings among investors. Relative to its peers and sector, General Motors has been a poor year-to-date performer. WAIT AND SEE what General Motors does this quarter.

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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