Is General Motors a Worthwhile Investment?

With shares of General Motors (NYSE:GM) trading around $32, 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 also sells cars and trucks to dealers for consumer retail sales, as well as to fleet customers, including daily rental car companies, commercial fleet customers, leasing companies, and governments. General Motors is going through a revolutionary phase where the company is reinventing their vehicles in an effort to increase demand. As General Motors enters a new age for their vehicles, look for the company to see rising profits as they once again match what consumers and companies demand.

T = Technicals on the Stock Chart are Strong

General Motors stock has been part of an established value range over several years. The stock bounced from the lower end of this range last year and is now near the top end. A solid break above this range may be very positive for its future stock price. 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.

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Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

General Motors Options

25.79%

0%

0%

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

May Options

Flat

Average

June 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 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

-27.96%

6.49%

-13.59%

-41.56%

Revenue Growth (Y-O-Y)

-2.27%

3.47%

2.33%

-4.47%

Earnings Reaction

3.35%

0.03%

0.7%

-0.04%

General Motors has seen mixed earnings and revenue figures over the last four quarters. From these figures, the markets have been pleased with General Motors’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has General Motors stock done relative to its peers, Ford (NYSE:F), Toyota (NYSE:TM), Honda (NYSE:HMC) and sector?

General Motors

Ford

Toyota

Honda

Sector

Year-to-Date Return

12.11%

5.41%

23.54%

8.50%

9.81%

General Motors has been a performance leader, year-to-date.

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Conclusion

General Motors is reshaping its business to accommodate new preferences among companies and consumers but is still a leading provider of vehicles around the world. The stock has been in a range for most of the last several years, a break above this range may be very positive for it. Earnings and revenue figures have been reasonable for the company which has provided positive reinforcement for investors. Relative to its peers and sector, General Motors has been a year-to-date performance leader. Look for General Motors stock to OUTPERFORM.

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