General Motors (NYSE:GM) just reported earnings and investors are driving the price of GM stock up 1.5% on the headline. The company easily trumped expectations on both the top and bottom lines. The spike this morning comes after it is already up 20% year-to-date.
The spike in GM stock today is even more impressive since management had already recently raised expectations that took the stock considerably higher coming into the earnings event. Today, they backed up their claims with a strong beat, especially on revenues.
Results in North America were outstanding, which more than compensated for the lackluster trends in China, where profits are markedly down. But that is not to say that GM had bad execution in China.
The Chinese markets were already struggling on their own. This comes on top of the tariff war that the U.S. is waging there. These are not just fear mongering, they have real effects on the ground.
The 2018 barrage of tariff headlines made GM stock a tough trade as it fell sharply off its January 2018 highs. This year so far it has been the total opposite. GM management clearly gave Wall Street reason to rejoice and buy the stock and investors ate it up. This morning, they backed up their claim and the results show it.
But this exuberance over General Motors stock has happened before. In October 2017, investors piled into it to set a new all-time high. It fell 35% from those highs into the 2018 lows. The interesting technical part of this is that it set its lows last October. The stock markets didn’t bottom until Christmas. And therein lies the opportunity
In essence, GM has been setting higher lows even into the maximum fears of last December. This is a statement of strength. Clearly, the bulls had a solid floor from which they are mounting this rally. So even if we hit more turbulence, the bottom should be shallow.
Indeed, the weekly charts show that the zone below $32 per share has been consolidating for at least five years. This is a clear situation that says the worst is behind it, barring some world-wide black swan event.
How to Approach GM Stock Today
If you own General Motors stock, then stay long in them. Otherwise, I would suggest investors initiate a position in General Motors stock to expose their portfolios to the auto sector. Clearly, this is a better stock to own than Ford (NYSE:F); GM is up twice as much as Ford this year.
GM’s new line of trucks and SUVs is making waves. Oil prices are probably mired under $60 for a long while. So this is not likely to hamper the new trend of buying larger vehicles. Furthermore, the technology has gotten better so that even the larger trucks are more efficient than before.
Tesla (NASDAQ:TSLA), the wild child in the auto sector announced that it’s going to enter the truck market soon and that will bring even more interest to the segment. The future of autos includes self-driving tech and GM has a solid entry in that race.
Under the leadership of Mary Barra, GM has been making strong moves and smart decisions. Long gone are the days of major flubs and union labor issues. She recently came under scrutiny from the White House and she managed well enough to make the company come out smelling like roses.
This is a mature management team that is firing on all cylinders. There is no reason to doubt GM stock for the long term. But if I don’t own the shares already, I would probably wait out this morning’s pop.
The last time General Motors stock popped over $41 per share, it brought sellers in droves. Some of those who bought shares above that have been trapped long for months. They might want to get out now as they recover most of the losses. This sometimes causes stalls.
Furthermore, we are fast approaching critical global political deadlines with regards to tariffs. Add to it that the fact that U.S. politicians will also have to agree on a budget and spending limits. This is all to say that investors can wait a day before risking thousands on a full GM stock entry here. But at least consider taking a partial position so you can leave room to add more on dips if they come.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.