(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
General Motors Co. (GM) shares have had a tough 2018, declining by nearly 10 percent through March 19, versus an S&P 500 that has climbed by about 1.5 percent. But analysts see better times ahead for General Motors, and are currently forecasting the automaker's stock to rise by nearly 30 percent to $48.35, based data on from YCharts.
Shares of GM have experienced significant pressure since the beginning of March due to weak auto sales and concerns that the new steel and aluminum tariffs could pressure margins. But the stock may have fallen too far, pushing the company's valuation to just 5.8 times 2019 earnings estimates, while technical analysis is also signaling a bottom is near. (See also: Trump's Steel and Aluminum Tariffs: What You Need to Know.)
Analyst See The Price Rising
Analysts currently see GM rising to $48.35 a share using the average price target on data provided by YCharts. That would be an increase of nearly 30.6 percent from GM's closing price March 19 of $37.01. Of the 25 analysts that cover the stock, 48 percent have a "buy" or "outperform" rating on General Motors, while 44 percent have a "hold" rating, and 8 percent rated as "underperform" or "sell."
Valuation Is Cheap
GM's valuation has come down considerably over the past several weeks, with the stock currently trading at around 5.9 times 2019 earnings of $6.34 per share. The last time the valuation was this depressed was in August of 2017, and that was followed by the stock rising by nearly 28 percent.
Technicals Signal A Bottom Is Near
The technical setup suggests that shares could be nearing a bottom as well. A long-term trend that started in August of 2015 is going in GM's favor, while a technical support level rests around $35.50. These two factors suggest GM has the potential for downside risk over the next several weeks to approximately $35.50 to $36, a decline of roughly 3 percent.
The relative strength index (RSI) also appears have put in a solid bottom, reaching oversold levels three times, with a reading of approximately 30, since February. The bottoming process in the RSI, as the stock has continued to fall, could serve as a signal of a bullish divergence in the works. But the RSI trend needs to turn positive as a confirmation that the stock has hit bottom. (See also: Divergences, Momentum and Rate of Change.)
While the worst may not be over for GM in the short term, the setup suggests that shares may soon begin to reverse for the better.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.