Where Will General Motors Go Next?

With shares of General Motors (NYSE:GM) trading around $36, 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.

General Motors hired the former U.S. Attorney who probed the Lehman Bros. collapse to lead GM’s internal investigation into how decisions were made at GM that resulted in continuing to use a faulty ignition switch now blamed for 13 deaths. GM said Monday that the probe is being jointly run by Tony Valukas, chairman of the law firm Jenner & Block, and by GM’s General Counsel, Michael Millikin. Valukas led the government’s investigation of the 2008 collapse of Lehman.

GM says attorneys from the law firm King & Spalding also are part of the team conducting the investigation. The involvement of an outsider and his firm with GM’s probe of its own people and processes is meant to signal that the company is serious about the investigation. GM CEO Mary Barra has promised the internal review will “give us an unvarnished report on what happened” and has said “we will hold ourselves accountable.”

T = Technicals on the Stock Chart Are Weak

General Motors stock has struggled to make positive progress in the last several years. The stock is currently pulling back and may need time to consolidate. 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 signals 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

27.86%

43%

40%

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

Put IV Skew

Call IV Skew

April Options

Average

Average

May Options

Average

Average

As of Tuesday, there is average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a significant 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 Increasing 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 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

5.56%

-49.44%

-16.67%

-3.33%

Revenue Growth (Y-O-Y)

3.05%

3.72%

3.88%

-2.32%

Earnings Reaction

-0.02%

3.24%

-1.10%

3.01%

General Motors has seen rising earnings and revenue figures over the last four quarters. From these numbers, the markets have had conflicting 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), and Tesla Motors (NASDAQ:TSLA) — and sector?

General Motors

Ford Motor

Toyota Motor

Tesla Motors

Sector

Year-to-Date Return

-10.2%

0.32%

-7.13%

62.25%

-4.67%

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 company hired the former U.S. Attorney to lead GM’s internal investigation. The stock has struggled to make positive progress in the last several years and is currently pulling back. Over the last four quarters, earnings and revenues have been on the rise. However, investors have had conflicting feelings about recent earnings announcements. 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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