General Motors Corp. (GM) hit a 14-month low two weeks ago and turned higher but buying interest since that time has been weak, lacking the enthusiasm that characterized the automaker’s run to new highs in 2020 and 2021. Supply chain disruptions, world events, and an EV timeline that won’t translate into meaningful profits for years have all contributed to this breakdown in bullish sentiment, which has dumped the stock’s two-year return into negative numbers.
Tough Environment for Automakers
GM depends on globalization and free markets to compete around the world but rising tensions are making it harder to grow international venues. In addition, the business of electric vehicles is requiring an enormous investment of time and resources, lowering earnings-per-share estimates through 2023. Adding insult to injury, soaring inflation is forcing automakers to raise sticker prices, which may lower demand at the same time that profit margins get squeezed.
Nomura Securities analyst Anindya Das summed up broad challenges in recent commentary, noting “we now expect GM to largely recover from the semiconductor chip shortages by 3Q22, vs. our prior belief that this would happen by 2Q22. Against this backdrop, and also based on GM’s commentary at the 4Q21 results briefing, we now expect it to reinvest cash into building its EV and AV (Cruise) businesses, while dialing back on shareholder returns. We think this is a prudent strategy, although it caps the outlook for near-term shareholder returns”.
Wall Street and Technical Outlook
Wall Street consensus has deteriorated in the last three months, dropping to an ‘Overweight’ rating based upon 15 ‘Buy’, 3 ‘Overweight’, and 6 ‘Hold’ recommendations. Price targets currently range from a low of $44 to a Street-high $100 while the stock is set to open Monday’s session on top of the low target. This placement may limit short-term downside but the long-term prognosis is bearish, given major distribution and other broken technical readings.
General Motors broke out above the 2017 high in the 40s in January 2021 and topped out in the 60s just three months later. The stock sold off after failed June, November, and January 2021 breakout attempts, completing a double top breakdown in February when it undercut the August low at 47.07. Bears will control the ticker tape unless this critical level is remounted, raising odds for a secular decline that retraces a sizeable portion of the gains posted since March 2020.
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Disclosure: the author held no positions in aforementioned securities at the time of publication.
This article was originally posted on FX Empire
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