Is General Motors Well-Positioned for the Future?

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 looked to put an end to any speculation of pay inequality for new CEO Mary Barra. The Detroit-based automaker Monday announced Barra — the first female head of any major automaker — is slated to make $14.4 million in 2014. Barra’s salary is split into three categories: a salary of $1.6 million; short-term incentive compensation of $2.8 million; and long-term compensation of $10 million. The long-term portion is subject to approval of a new incentive plan by GM stockholders at the company’s annual meeting in June.

The compensation announcement comes weeks after a Securities and Exchange Commission filing outlining part of Barra’s salary and days after some media outlets pointed out that Barra would get paid 52 percent less than her male predecessor, Dan Akerson. Those reports did not include the long-term compensation. In actuality, the 52-year-old executive is set to make 60 percent more than her predecessor, who stepped down as CEO on January 15. “As a new CEO, Mary’s total compensation is in line with her peer group and properly weighted so that most is at-risk,” said GM Chair Tim Solso, in a statement. “The company’s performance will ultimately determine how much she is paid.”

T = Technicals on the Stock Chart Are Weak

General Motors stock has struggled to make positive progress in the last several years. The stock is currently trading sideways 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 below its rising key averages which signal 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

29.53%

40%

38%

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

March Options

Steep

Average

April Options

Steep

Average

As of today, there is an 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 very significant 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

-0.02%

3.24%

-1.10%

3.01%

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), Tesla Motors (NASDAQ:TSLA), and sector?

General Motors

Ford Motor

Toyota Motor

Tesla Motors

Sector

Year-to-Date Return

-13.40%

-3.50%

-3.64%

30.97%

3.60%

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 on Monday announced CEO Mary Barra is slated to make $14.4 million in 2014. The stock has struggled to make positive progress in the last several years and is currently trading sideways. 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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