Here’s Why General Motors Is Racing Ahead

With shares of General Motors (NYSE:GM) trading around $36, is General Motors 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 also sells cars and trucks to dealers for consumer retail sales, as well as to fleet customers, including daily rental car companies, commercial fleet customers, leasing companies, and governments.

General Motors is going through a revolutionary phase where the company is reinventing its vehicles in an effort to increase demand. As General Motors enters a new age for their vehicles, look for the company to see rising profits as they once again match what consumers and companies demand.

The company is reportedly planning to gradually pull out of South Korea, Reuters reports. People familiar with the matter said that growing labor costs and aggressive unions have caused the automaker to rethink its dependence on South Korea, which currently accounts for a fifth of General Motors’s global production. Wage rates in South Korea have increased sharply in the past few years, making Genera Motors’s operations in the country more expensive than the company had predicted.

T = Technicals on the Stock Chart are Strong

General Motors stock has been trending higher over the last couple of years. The stock is now trading slightly below highs for the year and it may need a little more time before it begins its next move. 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 slightly above its rising key averages which signal neutral to bullish 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

24.75%

6%

4%

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

August Options

Flat

Average

September Options

Flat

Average

As of today, 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 very small 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’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?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

-16.67%

-3.33%

6.49%

-13.59%

Revenue Growth (Y-O-Y)

3.88%

-2.32%

3.47%

2.33%

Earnings Reaction

-1.10%

3.01%

0.03%

0.70%

General Motors has seen decreasing earnings and rising revenue figures over the last four quarters. From these numbers, the markets have mostly been pleased with General Motors’s recent earnings announcements.

P = Average 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 Motor (NASDAQ:TSLA), and sector?

General Motors

Ford Motor

Toyota Motor

Tesla Motor

Sector

Year-to-Date Return

25.11%

32.12%

37.19%

333.20%

27.85%

General Motors has been an average 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 company is reportedly planning on gradually pulling out of South Korea. The stock has been trending higher over the last couple of years and is now trading slightly below highs for the year. Over the last four quarters, investors in the company have mostly been pleased as earnings have decreased while revenues have been on the rise. Relative to its peers and sector, General Motors has been a year-to-date average performer. Look for General Motors to OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.