Here’s Why GM Is The Must-Watch Stock Right Now
Traders are getting excited about General Motors for the first time in years because its electric vehicle efforts finally seem to be adding up. I’m excited about it for another reason: it’s the perfect stock to usher in the next phase of the market.
A week ago I tweeted only slightly tongue-in-cheek that GM GM would be the next frothy FOMO stock trade. For those catching up, FOMO = Fear of Missing Out. Many argue it’s the defining characteristic of the stock market right now, with retail traders and Wall Street alike clamoring for a seat on the next Tesla TSLA train. As such, the electric vehicle sector has been the epicenter of speculation. SPACs promising to be the next breakthrough automaker crop up almost daily, and there are too many battery and charging companies with cool futuristic names to count.
Yet right now old school General Motors is as hot as anything out there. GM’s relative strength to Tesla bottomed on Jan. 8, and since then it’s up 26%, compared to Tesla’s 1.4% and Nio’s 0.7%. Battery and charging stocks are still running, but the scorching-hot momentum has ebbed some. Fuel Cell is up 11% during the same period and QuantumScape is down 18%, for example. Ford is starting to get some attention too, up 12% over that stretch, about half of GM’s move.
GM’s gaining traction because of a series of headlines about its efforts to ramp up its electric vehicle fleet. On Tuesday, Microsoft MSFT announced an investment in Cruise, the self-driving company GM bought all the way back in 2016. Last week, a string of Wall Street analysts upgraded the company after CEO Mary Barra showed off some cool renderings and big goals at the Consumer Electronics Show. It’s all pretty exciting stuff, for sure, and it stands to reason that GM stock should probably trade at a valuation more in line with the neophyte car players, considering that GM, you know, sells millions of cars every year.
But GM stock may be more than a temporary trading playground. GM trades at just under 18 times trailing earnings, notably lower than the broader market and obviously nowhere even close to the standard pure-EV play, few of which make any money and some of which have little more than a blueprint. After years of being forgotten by the market, GM is in just about every value index and ETF around. Yet if EVs truly are about to take over the highways, GM should have as good a growth story as any out there.
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In other words, General Motors sits at a unique juncture between the two predominant macroeconomic themes at work in the stock market: the non-stop speculative fervor of expensive growth stocks, and the months-long budding value rotation. While investors have gotten excited about a vaccine-driven reopening, no one wants to miss out on the incredible rally happening in companies whose momentum began during the tech-driven quarantine era. Technically speaking, value stocks have outperformed growth since September and small-caps have beaten the S&P 500, but there are dozens of growth stocks going parabolic. Virus curves in the US are peaking again, vaccines are getting rolled out, and fiscal support is on the way. The fundamental setup for more value-stock performance looks compelling, but short-term trading in bubbly growth stocks is still gobbling up all the trading flow.
Enter GM. It’s the perfect gateway drug to turn short-term traders into value investors. GM’s option trading is exploding right now because the headlines are flashy and promise big things in the future, but at its core it’s a beaten-down cyclical stock that needs the economy to make a full recovery. If an old stodgy car company can capture the attention of short-term traders, banks or hotel stocks could be next if the economy actually reopens. Line up the trading flow with the fundamentals, and the value rotation could be in store for another massive breakout.