Buy General Motors Stock

If GM posts a positive earnings report on Thursday, then its April high looks in range again.
By Richard Saintvilus ,

U.S. auto sales are still at highs for the decade, rising 1.5% to 8.65 million vehicles in June. That tops last year's record of 8.5 million vehicles, according to Autodata. This bodes well for General Motors (GM) - Get Report , which is due to report second-quarter earnings results before the opening bell on Thursday.

The sustained growth in auto sales has sent GM stock climbing about 7% over the past month, propelling the shares above both their 50-day and 100-day moving averages. GM stock is now in a bullish short-term trend, thanks to its post-Brexit move of more than 14%.

The charts suggest a rise of 5% to 10% is possible following GM's earnings report Thursday. Take a look at the chart, courtesy of TradingView.

GM shares closed Tuesday at $31.25, up 1.23%. It is firmly above its key moving averages: the 20-day ($29.37 -- blue line), 50-day ($29.91 -- pink line) and 100-day ($30.46 -- yellow line) benchmarks. Despite the recent rise, the stock is down 8.1% year to date, against a 5.9% rise in the S&P 500 (SPX) .

Analysts are broadly positive about the direction of the company. The stock has a consensus buy rating and an average analyst 12-month price target of $36.75. That means the stock is an excellent value, especially when combined with its quarterly dividend of 38 cents per share. That is a yield of nearly 5% annually, compared to a 2% yield for the average stock in the S&P 500.

The fundamentals of the company are solid. It has a forward price-to-earnings ratio of 5, while the S&P 500's average stock trades at a forward P/E of 17.

Technically, the stock is just as attractive. The shares have broken above resistance at $29.65; the next resistance level is at $31.35. This means $29.65 now becomes support. If a positive report is delivered Thursday with in-line guidance, then $33 per share -- the April high -- become the next target.

As the stock moves higher, the spread between support also moves higher. With auto sales still trending higher, GM's revenue and earnings should grow. This combination, driven by the stock's cheap P/E and strong yield, makes GM a must-own stock.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

Loading ...