Will General Motors Move Higher?

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.

General Motors announced third-quarter net income to common stockholders of $0.7 billion or 45 cents per fully diluted share, down from $1.5 billion or 89 cents per fully diluted share a year ago. Improvement in operating performance during the quarter was more than offset by a net loss from special items and incremental tax expense. “We made gains in the third quarter as we improved our North American margins and increased our global share on the strength of our Chevrolet brand,” said Dan Akerson, GM’s chairman and CEO.

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 signals neutral to bullish 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

27.78%

0%

0%

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

Put IV Skew

Call IV Skew

November Options

Flat

Average

December Options

Flat

Average

As of Wednesday, 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 minimal amount of call and put option contracts and are leaning neutral to bullish over the next two months.

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 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

3.46%*

-1.1%

3.01%

0.03%

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

*As of this writing.

P = Weak Relative Performance Versus Peers and Sector

How has General Motors stock done relative to its peers – Ford (NYSE:F), Toyota (NYSE:TM), and Tesla (NASDAQ:TSLA) — and sector?

General Motors

Ford

Toyota

Tesla

Sector

Year-to-Date Return

29.52%

34.21%

39.68%

370.10%

35.47%

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’s performance during the quarter was more than offset by a net loss from special items and an incremental tax expense.  The stock has been surging higher in recent quarters and is now trading near highs for the year. Over the last four quarters, earnings have been decreasing while revenues have been rising, which has pleased investors in the company. 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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