Is General Motors an Attractive Investment?

With shares of General Motors (NYSE:GM) trading around $39, 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 Co’s chief financial officer said on Sunday that the U.S. automaker is close to reintroducing a common stock dividend, but he declined to provide any details on timing. ”It’s clear to us that investors are anticipating a dividend,” Ammann, who is set to become GM president on Thursday, said on the sidelines of the North American International Auto Show.”We’re closer than we have been given all the actions that we have taken, investment grade rating, all of that. When we have something to announce we’ll do it.” GM last paid a dividend on its common stock in May 2008. Ammann also said he believed the European car market has bottomed but wasn’t sure how fast it would rebound. Mary Barra, who will succeed Dan Akerson as GM CEO later this week, said the automaker would continue to strive to offer good values to customers after she takes the helm this week.

T = Technicals on the Stock Chart Are Mixed

General Motors stock has been in a range over the last couple of quarters. The stock is currently pulling back and may need time to stabilize before heading higher. 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

29.36%

10%

8%

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

February Options

Flat

Average

March 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 minimal 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 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

-2.54%

4.89%

-1.85%

-6.00%

-2.37%

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’s chief financial officer said on Sunday that the U.S. automaker is close to reintroducing a common stock dividend. The stock has been in a range over the last couple of quarters and is currently pulling back. 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. WAIT AND SEE what General Motors does this quarter.

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