Can General Motors Drive Your Portfolio Higher?

With shares of General Motors (NYSE:GM) trading around $35, 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 is set to open a new $200 million plant in Arlington, Texas, designed to help the company cut logistics costs, The Wall Street Journal reports. The new metal stamping plant will reduce shipping costs by $40 million, as it’s located right next to a General Motors assembly plant. Company CEO Dan Akerson is trying to increase General Motors’s North American margins from 8 percent to 10 percent as the company seeks to stay ahead of rivals.

T = Technicals on the Stock Chart Are Strong

General Motors stock has made positive progress in the past couple of years. The stock is currently trading below highs for the year but looks to be getting ready for a push 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 key averages. which signals neutral price action in the near term.

GM

Source: Thinkorswim

Taking a look at the implied volatility 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

32.28%

83%

81%

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 30 and 90 trading days.

Put IV Skew

Call IV Skew

October Options

Flat

Average

November Options

Flat

Average

As of Monday, there is 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 significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

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 upbeat 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 (NYSE:F), Toyota (NYSE:TM), Tesla (NASDAQ:TSLA) — and sector?

General Motors

Ford

Toyota

Tesla

Sector

Year-to-Date Return

22.58%

32.59%

40.28%

435.80%

31.68%

General Motors has been a weak 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 set to open a new plant in Texas in an effort to help the company cut logistics costs. The stock has done well in recent years and is now trading slightly below highs for the year. Over the last four quarters, earnings have been decreasing while revenues have been rising, which has led to upbeat investors. Relative to its peers and sector, General Motors has been a weak year-to-date performer. Look for General Motors to continue to improve and OUTPERFORM.

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