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GM shows value as investors seek year-end write-offs

|Includes: General Motors Company (GM)

Tim Biggam, TradingBlock  (December 6, 2011, 3:03pm CST)

Symbol Analyst Target Price Target Date
GM 24.00 March 16, 2012

General Motors Company (ticker: GM) is a global automotive company that develops, produces and markets cars, trucks and parts worldwide. GM also provides automotive financing services through General Motors Financial Company, Inc. (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 (Saab).

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.

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 RSI showing some long overdue strength after reaching extremely over-sold levels. Given the cheap valuation and strong technical backdrop, I look for GM to move back to the 24 level by March expiration.

Play of the Day

Based on General Motors Company's (ticker: GM) current market price of $21.68 and using a target price of $24.00, a target date of March 16, 2012 and $1,000 of investment capital, below are three options strategies (ranked by potential profit) and a comparative stock trade to consider should the price target be achieved at the target date.

Click on the strategy name below to access trade details using TradeBuilder on Powered by TradingBlock's TradeBuilder.

Strategy (click for details) % Return at Target Probability of breaking
even or better
Buy Mar Call Spread +102% 51%
Sell Mar Put Spread +80% 56%
Buy Mar Put Butterfly +63% 71%
Buy Stock +11% 597

* Click link to access TradeBuilder details on Must have Instant or Actual account. Subject to change due to changing market conditions.  Click here to view risks regarding selling stock short.

DISCLAIMER: This content is provided for educational and informational purposes only. Evaluate any strategy prior to use to understand risk and suitability. TradingBlock does not endorse or warrant any Market Analyst content, service or product. Use this content at your own risk without guarantee or warranty of any kind from TradingBlock. Tim Biggam is a TradingBlock registered representative. He is not compensated by TradingBlock for any market research or analysis services.