GM rally picks up steam after landing full bull rating

Key Points

• The stock had been drifting back to multi-year lows before last week’s update.
• Management raised forward guidance, boosted their dividend, and announced a stock buyback program. 
• This week has already seen a fresh upgrade add further fuel to the rally. 

Having drifted down to multi-year lows, shares of General Motors Company NYSE: GM put in a hard low earlier this month and have been rallying since. They’re now up about 25% from the low and on track to get back to trading once again in the range they’d been in since July 2022. 

General Motors certainly hasn’t been the most exciting stock to watch, let alone an attractive one to own, but there is an interesting opportunity opening up right now. This week saw two major tailwinds lend themselves to the bull camp, which should be enough to send shares rallying to the top of the range by year-end. 

Bullish updates

The first of these was the news last week from management that their forward outlook had improved, and as a result, they were boosting the company’s quarterly dividend and announcing a $10 billion stock repurchase program. Each of these is a major bullish event in its own right, so when announced together, you can expect big gains. General Motors shares had their best day in years and gapped up as much as 11% the next day. And the good news? They’ve only added to those gains since. 

The reason these updates are so bullish is that they indicate to investors and to the market that management’s outlook has improved considerably. Such is the negative reaction to a cut dividend, for example, that companies only raise it when they know it will be sustained. And this only happens when the company’s own outlook is rosy. The share buyback scheme works in much the same way and is another way for the company to say they think the shares are so undervalued that they’re willing to buy them themselves. 

Considering that the stock had just fallen back to a three-year low, it was a timely update. Off the back of the news, the team over at Bank of America reiterated their Buy rating on the stock and said they see the update causing a fresh flow of volume to the bid as interest in the stock increases. Analyst John Murphy remains bullish but offers a hint of caution to investors, noting that greater clarity is still needed from the company’s management on its long-term electric vehicle strategy. 

Fresh upgrade

This week saw a fresh analyst update send shares even higher. The team at Mizuho had the stock rated Neutral, but on the back of last week’s update and dissipating headwinds, they saw fit to upgrade it to a full Buy. Analyst Vijay Rakesh had been wary of the United Auto Workers (UAW) strike, which had interrupted production, but the new UAW contract now sets both sides up for long-term success. 

While there will be some higher wages for General Motors to pay, these will be offset by other cost-saving initiatives and a refreshed focus on profitability. With the threat of strike action now removed, Rakesh sees 2024 as one of their better years for production. Considering the stock is currently valued at a 10-year low, this is a good time to be getting long. 

So, with the fundamentals improving, it’s also worth noting that the technicals are supporting the bull’s case. The stock’s relative strength index is above 70, indicating overbought conditions, but this is to be expected when there’s a sudden and fundamental shift in a company’s outlook. It’s not anywhere near concerning levels just yet and remains a bullish indicator. 

General Motors shares are also on the verge of passing back above the pivotal $33 level, which is the bottom of their old range and where they found buyers numerous times in the past eighteen months. This will once again become a key line of support, so it is a perfect place for investors to work entry opportunities with a tight stop below. It will be some time before General Motors is back up at its pandemic heights, but the updates from this week and last week are a good start.