Can General Motors Outperform The Rest of The Year?

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 CEO Dan Ackerson is testing the possible candidates to replace him by giving them some of the company’s most difficult problems to solve, according to a report from the Wall Street Journal. There are four candidates up for the position: North American operations chief Mark Reuss, global product development head Mary Barra, Vice Chairman Stephen Girsky, and CFO Daniel Ammann. Ackerson hasn’t said exactly when he’s leaving GM, but he is expected to leave by 2015. The Journal pointed out that all the candidates are younger than 55 and so could lead the company for up to a decade, giving GM the kind of stability it hasn’t seen since before the financial crisis and its bankruptcy.

T = Technicals on the Stock Chart Are Strong

General Motors stock has been exploding to the upside in recent months. The stock is now trading near highs for the year and looks healthy enough 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 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

31.33%

90%

88%

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 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 significant 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 increasing revenue figures over the last four quarters. From these numbers, the markets have mostly been pleased with 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

24.18%

32.32%

36.40%

446.60%

34.38%

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. Talks about a possible CEO replacement of current CEO Dan Ackerson are rising as General Motors is testing possible candidates. The stock has been rising higher in recent months and is now trading near highs for the year and looks ready to continue. Over the last four quarters, earnings have been decreasing while revenues have been increasing which has left investors mostly pleased with recent earnings announcements. Relative to its peers and sector, General Motors has been a weak year-to-date performer. Look for General Motors to catch-up and OUTPERFORM.

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