Can General Motors Stock Rebound?

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’ net income fell 22 percent for 2013 to $3.8 billion as a disappointing fourth quarter drove results far below Wall Street’s expectations. But a $7.5 billion operating profit in North America will allow GM to distribute profit-sharing checks of up to $7,500 to UAW employees, an increase from $6,750 last year. GM’s net income in the fourth quarter rose 2 percent to $913 million, but the performance missed Wall Street’s expectations by a wide margin. The company recorded operating earnings per share of 67 cents, while analysts were expecting 87 cents.

The automaker still expects a slight increase in global profit for 2014 as it realizes the benefits of redesigning its full-size pickup trucks and other key products. “Launches of some of the best vehicles in our history combined with significant improvements in our core business led to a solid year,” new CEO Mary Barra said in a statement. “The tough decisions made during the year will further strengthen our operations. We’re now in execution mode and our sole focus will be on delivering results on a global basis.”

T = Technicals on the Stock Chart Are Weak

General Motors stock has been trending higher over the last couple of months. However, the stock is seeing lower lows as it continues to pull back. 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 below its rising key averages, which signals neutral to bearish 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

29.44%

33%

30%

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

Put IV Skew

Call IV Skew

March Options

Steep

Average

April Options

Steep

Average

As of Thursday, there is average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bearish 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 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 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

5.56%

-49.44%

-16.67%

-3.33%

Revenue Growth (Y-O-Y)

3.05%

3.72%

3.88%

-2.32%

Earnings Reaction

-0.74%*

3.24%

-1.1%

3.01%

*As of this writing.

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

General Motors

Ford Motor

Toyota Motor

Tesla Motors

Sector

Year-to-Date Return

-14.5%

-4.7%

-5.15%

19.58%

-2.19%

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 net income fell 22 percent for 2013 to $3.8 billion as a disappointing fourth quarter drove results far below Wall Street’s expectations. The stock has been trending higher over the last couple of months but is now pulling back. Over the last four quarters, earnings and revenues have been on the rise. However, investors have had mixed feelings about recent earnings announcements. Relative to its peers and sector, General Motors has been a poor year-to-date performer. WAIT AND SEE what General Motors does this quarter.

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