General Motors Bounce Unlikely to Persist

General Motors Co. (GM) hopes to lift weakened investor sentiment on October 6 when the automaker presents its annual two-day Investor’s Day event. The stock has struggled since posting an all-time high at 63.88 in June, giving up more than 25% of its value before bouncing in the upper 40s in late August. Accumulation readings have taken a steep slide during this period, dumping to the lowest lows since October 2020 when GM was trading in the mid-30s.

Supply Shortages Weigh on Profits

Automotive chip shortages are well documented but lasting far longer than overly-optimistic forecasts published in the first quarter of 2021. Many experts now believe that supply shortages and disruptions will persist until at least the second quarter of 2022, forcing GM to idle factories and fail to meet high demand. In fact, just 10 days ago, the company added to scheduled downtime at seven plants in the US, Canada, and Mexico, highlighting this chronic headwind.

Citigroup analyst Itay Michaeli outlined his bullish view ahead of Investor’s Day on Friday, noting, “We continue to regard the upcoming Investor Day as a potential significant positive catalyst for the stock, as we see a number of paths for GM to address key debates and unlock trapped value. We’re also updating our model to reflect GM’s recent reiteration of its 2021 EBIT-adj. guidance range, but with additional headwinds from the recall and semi-shortage, which moves our estimates to the lower-end of GM’s 2021 range”.

Wall Street and Technical Outlook

Ecstatic Wall Street coverage has failed to weigh the long-term impact of shortages, with a consensus ‘Buy’ rating based upon 21 ‘Buy’, 2 ‘Overweight’, and 2 ‘Hold’ recommendations. Price targets currently range from a low of $53 to a Street-high $90 while the stock closed Friday’s session just below the low target. GM has now traded under the low target for six straight weeks, with sidelined investors keeping their powder dry until supplies improve.

General Motors sold off to an all-time low in the mid-teens in March 2020 and turned sharply higher, returning to the 2017 high at 46.78 in January 2021. An immediate breakout added points into June’s all-time high, ahead of a decline that bounced at the prior peak in August. However, the downturn also broke a long-term trendline, establishing a strong barrier in the lower 50s, reinforced by 50-and 200-day moving average resistance. These obstacles will be tough to mount, at least in the short-term, given weak accumulation readings.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.