Autos

Can General Motors Climb Higher?

With shares of General Motors (NYSE:GM) trading around $34, 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.

On the day before CEO Mary Barra is scheduled to sit before a House subcommittee to testify in regards to General Motors’ ongoing defective ignition case, the company put out yet another recall for potentially faulty electric power steering, covering 1.3 million vehicles. The recall effort now brings GM’s total recalled vehicles up to 6.1 million since January.

This is entirely separate from the 2.6 million-plus vehicles that were recalled over the well-publicized ignition switch recall, which was first launched in January and then expanded in February. It’s also separate from the million-plus vehicles recalled for airbag concerns.

Suffice it to say that GM isn’t having a stellar year on the safety front. It’s almost as if Barra — who took the helm from Dan Akerson in January — stumbled upon a stash of recalls that should have taken place but never did, and now the company is making up for years of not taking action. It’s believed that General Motors knew of the ignition switch defect as early as 2001, though it took 13 years and 13 deaths until the necessary measures were taken.

T = Technicals on the Stock Chart Are Mixed

General Motors stock has struggled to make positive progress in the past several years. However, the stock is currently surging higher and looks set to continue. 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

29.87%

66%

64%

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

Put IV Skew

Call IV Skew

May Options

Steep

Average

June Options

Steep

Average

As of Tuesday, 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 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%

-1.1%

3.01%

General Motors has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have had conflicting 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

-14.90%

4.21%

-7.36%

42.84%

-5.01%

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 put out yet another recall for potentially faulty electric power steering, covering 1.3 million vehicles. The stock has struggled to make positive progress in the past several years but is currently moving higher. Over the last four quarters, earnings and revenues have been on the rise. However, investors have had conflicting 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.

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.