Can General Motors Break Higher?

With shares of General Motors (NYSE:GM) trading around $40, 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’ North American head said he believes the automaker will see a sales bump once the U.S. government exits its remaining stake in the company. Anonymous sources also told the Wall Street Journal that the government could sell its remaining stock in General Motors as soon as this week. The government has said that it plans to leave the company by the end of the year; the U.S. Treasury still owns 31.1 million shares in the Detroit-based automaker. GM has bounced back since its bailout in 2009 but still suffers from an image problem because of the government assistance, including the disparaging nickname “Government Motors.”

T = Technicals on the Stock Chart are Strong

General Motors stock has been in a range over the last couple of quarters. The stock is currently surging higher as it trades near highs for the year. 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

31.04%

73%

70%

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

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 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 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 = Excellent 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

41.59%

28.19%

30.64%

329.30%

34.47%

General Motors has been a relative performance leader, 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 North American head said he believes the automaker will see a sales bump once the U.S. government exits its remaining stake in the company. The stock has been in a range over the last couple of quarters but, is currently surging higher. 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 a relative year-to-date performance leader. Look for General Motors to OUTPERFORM.

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