General Motors Gunning for Higher Prices in 2012

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As year-end approaches, investors look to unload stock for losses and this can create opportunities in oversold, undervalued names. One of these names is General Motors (NYSE:GM), a global automotive company that develops, produces and markets cars, trucks and parts worldwide.

The company also provides financing services through General Motors Financial Co. (GM Financial), formerly AmeriCredit Corp. (AmeriCredit), which it acquired in October 2010. GM Financial purchases automobile finance contracts for new and used vehicles purchased by consumers primarily from franchised and select independent dealerships. In May 2010, GM completed the sale of Saab Automobile AB.

GM has been under siege lately, with the share price nearly being cut in half this year. Earnings estimates for GM are about 4.49 for 2011 and 4.60 for 2012. So with the stock trading at $21.35, this puts the forward multiple at only 4.65.

While GM earnings would be impacted by an economic slowdown, we feel the multiple contraction is extreme, especially given that input costs would likely also fall in an economic downturn.

Shares have held support at the $20 level twice, putting in a nice double-bottom, with the 9-day Relative Strength Index showing some long-overdue strength after reaching extremely oversold levels. Given the cheap valuation and strong technical backdrop, I look for GM to move back to the $24 level by March expiration.

Based on GM’s current market price of $21.68 and using a target price of $24, a target date of March 16, 2012, and $1,000 of investment capital, this is an excellent candidate for capturing some nice upside by buying a March call (like the GM March 18 Call) or a call spread, selling a March put spread or buying the stock.

For the full details on this trade, visit TradingBlock.com, create a free Instant Login and try the TradeBuilder feature, where you’ll see several ways to trade this name. Best of all, you can see a potential profit-and-loss outline for each strategy.

Create your free login, and get access to these GM option trading strategies by visiting the TradeBuilder here.


Tim spent 13 years as Chief Options Strategist at Man Securities in Chicago, four years as Lead Options Strategist at ThinkorSwim and three years as a Market Maker for First Options in Chicago. Tim makes weekly appearances on Bloomberg TV  “Options Insight”, Business First AM “Trader Talk”, TD Ameritade Network “Morning Trade Live” and CBOE-TV “Vol 411” to discuss everything from volatility and option related.


Article printed from InvestorPlace Media, https://investorplace.com/2011/12/general-motors-gunning-for-higher-prices-in-2012/.

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