Will Recent Headlines Hurt General Motors Stock?

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.

General Motors announced another broad recall Monday, saying about 1.2 million of its popular crossover SUV models will need to have the wiring for its seat-mounted side airbag fixed. The models involved are the 2008-13 Buick Enclave and the GMC Acadia, along with the 2009-13 Chevrolet Traverse and the 2008-2010 Saturn Outlook. Those vehicles have a warning light that reads “Service Air Bag.” If a customer ignores the light it can eventually result in the non-deployment of the air bag and other safety features in case of a side impact collision. Spokesman Greg Martin said the company is not aware of any injuries caused by the problem. Separately, 64,000 Cadillac XTS full-size sedans from 2013 and 2014 are being recalled to fix a problem with overheating brakes that has been responsible for two fires. And it is also recalling 303,000 Chevrolet Express and GMC Savana full-size vans to rework the material on the instrument panel to improve the safety of unbelted passengers who hit it during an accident. The full-sized vans are typically commercial vehicles not sold for passenger use.

T = Technicals on the Stock Chart are Mixed

General Motors stock has struggled to make positive progress in the last several years. The stock is currently bouncing off of lows and looks set 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 below its rising key averages which signal neutral to bearish 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

31.43%

83%

80%

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

Put IV Skew

Call IV Skew

April Options

Steep

Average

May Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish 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), Tesla Motors (NASDAQ:TSLA), and sector?

General Motors

Ford Motor

Toyota Motor

Tesla Motors

Sector

Year-to-Date Return

-16.70%

-1.26%

-9.53%

54.45%

-8.16%

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 says about 1.2 million of its popular crossover SUV models will need to have the wiring for its seat-mounted side airbag fixed. The stock has struggled to make positive progress in the last several years and is currently bouncing off lows. 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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