Options Trade – General Motors Company (NYSE:GM) Calls
Monday, February 02, 2015

**OPTIONS TRADE: Buy the GM Mar 2015 35.000 call (GM150320C00035000) at or under $0.45, good for the day. Do not place a protective stop loss but a pre-determined sell at $0.90.

by Ian Harvey

February 02, 2015

Introduction

General Motors Company (NYSE: GM), which designs, build and sell cars, trucks and automobiles parts globally, as well as providing automotive financing services through General Motors Financial Company, Inc (GM Financial), will report its fourth-quarter numbers before the market opens on February 4. The stock trended lower in January, and is down 6.5% on the year. Analysts have forecast earnings of 84 cents per share.

General Motors has trended lower in January with the overall market, but the economic landscape is still very favorable for the company, which is why S&P ranks the stock as a "strong buy". The auto industry has improved a lot since the recession, and industry experts believe sales will continue to grow in 2015 as well. If the company hits its quarterly estimate, it will mark a 23.8% year-over-year increase, which will bring excitement back into the stock and put shares back into an upward trend. GM's biggest competitor, Ford Motor (F) has already reported its quarterly numbers, which came in better than expected and resulted in a quick boost to the stock.

Technical Details

General Motors Company has a 1-year low of $28.82 and a 1-year high of $38.15.

The stock has a 50-day moving average of $33.70 and a 200-day moving average of $33.27.

The company has a market cap of $52.860 billion and a P/E ratio of 21.31.

Earnings

On October 23, 2014, the company reported third quarter earnings of $0.97 per share, which beat the consensus of analysts' estimates by $0.02. In the past year, the company's stock is down 9.26% and is losing to the S&P 500, which has gained 13.35% in the same time frame.

The company currently trades at a trailing 12-month P/E ratio of 21.29, which is fairly priced. However the 1-year forward-looking P/E ratio of 7.75 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $4.31 per share and are considered inexpensive until about $65.

Market Growth

GM's business is actually pretty strong. Global sales rose 2% last year as China, the US and Canada all posted very robust gains and with China - GM's largest market - growing by 12%. This growth has come from solid strategy and execution that still has some room for improvement but is nowhere near as bad as the earnings multiple would suggest.

Sales in China grew by an impressive 13.1% to 2.552 million units as the company managed to offer more models in their product mix to consumers in the mainland.

Sales in the US made a recovery as consumer confidence continues to improve. The company sold 853,000 units last year, nearly 9% higher than the previous year.

GM is investing heavily in Cadillac because that brand is on fire and will be a significant profit center for the General in the coming years.

GM's new management team is also impressive after the fumbling of the ignition switch problem which, admittedly, happened on other people's collective watch.

GM also yields 3.6%, where most income stocks have been bid up so aggressively at this point that they're difficult to buy, but GM is still sporting roughly twice the market's yield. And after the ignition mess is out of the way, the company will have the all-clear to continue to increase its payout as earnings grow. This is a huge draw for GM right now.

Finally, with the price of gas to consumers having been obliterated in the past couple of quarters, GM should stand to benefit. GM cars have never had the reputation of being the most fuel efficient and while that perception is changing as GM evolves, lower gas prices should get more people to consider GM when buying a car because the simple fact is that if gas isn't expensive, people just don't care as much. That's great news for luxury brands like Cadillac that eschew high mileage ratings in favor of features and GM's SUV and truck lineups. Consumers should be more open to these cars with sub-$2 gas and that should provide a boost to GM's sales ceiling.

Analysts Opinions

General Motors Company had its price target reduced by Deutsche Bank from $39.00 to $35.00 in a research note issued to investors on Wednesday. The firm currently has a hold rating on the stock.

p style="font: 12pt Times New Roman;color:#000000;">The company has been also been the subject of a number of other research reports:-

• Analysts at JPMorgan Chase & Co. lowered their price target on shares of General Motors Company from $47.00 to $46.00 and set an overweight rating on the stock in a research note on Friday, January 23rd.

• Analysts at Barclays raised their price target on shares of General Motors Company from $42.00 to $43.00 and gave the company an overweight rating in a research note on Thursday, January 15th.

• Analysts at Citigroup Inc. downgraded shares of General Motors Company to a neutral rating in a research note on Wednesday, January 7th.

• Finally, analysts at RBC Capital downgraded shares of General Motors Company from an outperform rating to a sector perform rating in a research note on Tuesday, December 30th.

Four investment analysts have rated the stock with a sell rating, six have assigned a hold rating, eight have issued a buy rating and one has assigned a strong buy rating to the company’s stock. General Motors Company presently has a consensus rating of Hold and a consensus target price of $37.28.

Conclusion

GM has already said that it closed out the year strong, and enjoyed 19% year-over-year sales growth in December. It is expected that GM's numbers will be strong, and therefore expect the stock to climb following the report.

Therefore, based on the facts above the following options trade is recommended…..


**OPTIONS TRADE: Buy the GM Mar 2015 35.000 call (GM150320C00035000) at or under $0.45, good for the day. Do not place a protective stop loss but a pre-determined sell at $0.90.



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