Is General Motors Worth Investing In?

With shares of General Motors (NYSE:GM) trading around $38, 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 shares were down 0.8 percent, after the firm released the best November sales results in six years. GM reported car sales were 212,060, up 13.7 percent in November, compared to a year earlier. The car company’s GMC brand saw a 19.8 percent increase with 35,727 total sales. Chevrolet sales were up 12.6 percent with 145,089 in total sales for the month. Buick car sales were 15,072, up 13.4 percent and Cadillac sales were 16,172, up 11.4 percent. “November sales were strong at all four of our brands, and demand was robust for everything from cars to crossovers to the industry’s newest and best full-size pickups,” said Kurt McNeil, GM vice president of U.S. sales operations.

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 trading sideways and may need time to consolidate 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

31.43%

80%

78%

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 (NYSE:F), Toyota (NYSE:TM), Tesla (NASDAQ:TSLA), and sector?

General Motors

Ford

Toyota

Tesla

Sector

Year-to-Date Return

32.33%

28.07%

32.03%

307.20%

30.81%

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 shares were down 0.8 percent after the firm released the best November sales results in six years. The stock has been in a range over the last couple of quarters and is currently trading sideways. 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. WAIT AND SEE what General Motors does this quarter.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.