Is General Motors a Buy Now?

With shares of General Motors (NYSE:GM) trading around $37, 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.

On Monday, the Opel division of General Motors reported that it has reached a preliminary accord with workers to shut its factory in Bochum at the end of 2014, showing that European automakers have tried to slow down the attenuation of manufacturing capacity. Opel had already said that it would close the factory, which builds Zafira minivans and employs some 3,200 persons. However, the arrangement with the Opel workers’ council would permit the company to stop production at the end of next year without the protests or work stoppages that have damaged efforts by firms such as Ford or PSA Peugeot Citroën to shut their facilities.

T = Technicals on the Stock Chart Are Strong

General Motors stock has been surging higher in the past couple of years. The stock is currently trading near highs for the year and looks poised 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

25.82%

6%

4%

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

Put IV Skew

Call IV Skew

December Options

Flat

Average

January 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 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 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

-49.44%

-16.67%

-3.33%

6.49%

Revenue Growth (Y-O-Y)

3.72%

3.88%

-2.32%

3.47%

Earnings Reaction

3.24%

-1.10%

3.01%

0.03%

General Motors has seen decreasing earnings and rising revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about 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 (NYSE:F), Toyota (NYSE:TM), Tesla (NASDAQ:TSLA), and sector?

General Motors

Ford

Toyota

Tesla

Sector

Year-to-Date Return

33.30%

30.97%

35.66%

277.70%

34.31%

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 reported that it has reached a preliminary accord with workers to shut its factory in Bochum at the end of 2014, showing that European automakers have tried to slow down the attenuation of manufacturing capacity. The stock has been surging higher in the past couple of years and is now trading near highs for the year. Over the last four quarters, earnings have been decreasing while revenues have been rising, which produced conflicting feelings among investors. Relative to its peers and sector, General Motors has been an average year-to-date performer. Look for General Motors to catch up and OUTPERFORM.

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