Can General Motors Break Higher?

With shares of General Motors (NYSE:GM) trading around $34, 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.

The attorney hired by General Motors has reportedly started meeting with a lawyer representing the plaintiffs in a suit pertaining to the company’s ignition switch recall to discuss what a potential settlement for claims would look like regardless of when the accidents occurred, Reuters reported Tuesday. Attorney Robert Hilliard is the lawyer representing more than 300 people and families with claims for injuries or deaths due to the now-recalled vehicles (all 2.59 million of them), and told Reuters that attorney Kenneth Feinberg, who is representing GM, had initiated the meeting at Feinberg’s Washington office. Feinberg, who has helped negotiate settlements and claims for events such as the BP Deepwater Horizon disaster and the September 11 attacks, acknowledged via email to Reuters that the meeting took place, but he declined further comment on the matter.

However, his validation of the meeting suggests that the company is making meaningful headway in reaching out to the affected individuals and families, at least in some aspect. The meeting seemed to be intended “to convince me they (GM) were going to do right” by people who were injured or killed as a result of the faulty switch, Hilliard told the publication, but he added that no agreement was reached on financial details. He said that would likely include General Motors assuming legal responsibility for injuries or deaths from all accidents, regardless of when they occurred, and, largely, the investigations aren’t done yet.

T = Technicals on the Stock Chart are Weak

General Motors stock has struggled to make positive progress in the past several years. The stock is currently trading sideways and may need time to consolidate before heading higher. 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 between its rising key averages which signal neutral price action in the near-term.

GM

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

26.18%

0%

0%

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

Put IV Skew

Call IV Skew

June Options

Average

Average

July Options

Average

Average

As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral 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’s 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 mixed feelings about General Motors’s 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), Tesla Motors (NASDAQ:TSLA), and sector?

General Motors

Ford Motor

Toyota Motor

Tesla Motors

Sector

Year-to-Date Return

-14.60%

0.42%

-10.60%

33.58%

3.20%

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. The attorney hired by General Motors has reportedly started meeting with a lawyer representing the plaintiffs in a suit pertaining to the company’s ignition switch recall. The stock has struggled to make positive progress in the past several years and is currently trading sideways. Over the last four quarters, earnings have been decreasing while revenues have been increasing, which has produced mixed 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.

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