General Motors Could Rally After Earnings

General Motors Co. (GM) reports Q4 2021 results after Tuesday’s closing bell, with analysts looking for a profit of $1.15 per-share on $34.24 billion in revenue. If met, earnings-per-share (EPS) will mark a 40% profit decrease compared to the same quarter in 2020. The stock gained about 1% in October despite missing Q3 revenue expectations and has lost about 10% of its value in the last three months, despite posting an all-time high just four weeks ago.

Buyers Having Second Thoughts

Buying interest in electric vehicle production has waned so far in 2022, triggering corrections all across the automotive and auto parts sector.  High costs, battery limitations, and the lack of a nationwide charging grid are forcing many consumers to put off purchases until later this decade, when the technology is expected to mature. Supply disruptions have raised sticker prices and emptied inventories at the same time, as evidenced by a 43% decline in GM’s Q4 sales.

Deutsche Bank is still pounding the table, viewing General Motors as better long-term bet than rival Ford Motor Co. (F). Even so, analyst Emmanuel Rosner expects both companies to post solid 2022 outlooks, “reflecting unusual concurrent positive industry conditions of volume recovery and robust pricing, offsetting cost inflation.” His price targets reflect this contrasting view, with GM’s $71 equating to 10 times projected 2022 EPS while F’s $24 yields just 9 times.

Wall Street and Technical Outlook

Wall Street consensus is glued to a ‘Buy’ rating, now based upon 19 ‘Buy’, 2 ‘Overweight’, 4 ‘Hold’, 0 ‘Underweight’, and 0 ‘Sell’ recommendations. Price targets currently range from a low of $53 to a Street-high $100 while the stock is set to open Tuesday’s session right on top of the low target. Taken together with January’s slide to a 4-month low, this humble placement suggests significant upside potential if the company posts a solid quarter.

General Motors broke out above multiyear resistance in the 40s at the start of 2021 and stalled in the mid-60s in March. Four breakout attempts have failed since that time, yielding a potential topping pattern with support in the upper 40s. Accumulation has now fallen to the lowest low since September 2020, indicating aggressive profit-taking that will take time to overcome. Even so, weekly relative strength readings are deeply oversold, raising odds for a healthy bounce.

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