Part 3

General Motors (GM)

Company background

Headquartered in Detroit, Michigan, General Motors is a company with global scale and capabilities, currently employing over 155,000 people, serving 6 continents and operating across 22 time zones. GM’s core business operations include designing, manufacturing, marketing, and distribution of vehicles and vehicle parts, with a minor additional exposure in selling financial services.

The company’s main objective is to deliver world-class customer experiences at every touchpoint and do so on a foundation of trust and transparency. General Motors has been actively pursuing its goals throughout the last few years, by making certain bold commitments and innovations in areas like Electrification, Vehicle Safety, Autonomous driving etc. This in turn has allowed the company to move one step closer of reaching its vision of “World with zero crashes, zero emissions and zero congestion”.

General Motors is the largest auto maker in the U.S. accounting for 17.1% of the industry’s total sales in 2020.

The company has experienced a remarkable turnaround since it filed for bankruptcy back in 2009, and has now become one of the most well-run and managed companies in the industry. Throughout the last few years, General Motors has stepped up its efforts in embracing the prospects of an electric future and gaining a strong foothold in this fast-growing market. The top U.S. carmaker has officially announced its plans to spend more than $27 billion through 2025 to launch gen-next EVs powered by new-low cost batteries. General Motors also plans to roll out 11 new EVs as part of its ambitious plans through 2025, including at least 20 new models by 2023.

Current position – Financial Performance and Future Growth Prospects

The US auto industry is just one of the many parts of the economy that is under heavy pressure at the moment, as a result of the global microchip shortage. Despite being the largest US auto maker, GM is far from being immune to the current semiconductor supply deficit as modern vehicles are full of electronics and systems powered and governed by these microprocessors and chips. Without enough semiconductor products, the manufacturing process slows down drastically and in some instances has to fully stop. The chip crunch has forced the company to temporarily seize operations across some of its factories. Furthermore, General Motors has already warned that 2021 pretax profits might take a $1.5-$2 billion hit, thanks to the shortfall of microchip. This comes to show you how crucial semiconductor companies are for the well-being of the global economy in this technology driven environment. Leaving the current chip crunch aside, GM will be facing few additional hurdles this year like high product launch costs, R&D expenses and capital expenditure, which will inevitably result in lower margins for the company. General Motor’s CAPEX for 2021 is expected to be in the range of $9 billion and $10 billion, which will practically mark a significant uptick from $5.2 billion recorded in 2020. However, it is important to note that the company still has a relatively high debt to capitalization ratio, which makes the company less flexible from a financial standpoint and more exposed to a potential tightening of the monetary policy in the US. Higher interest rates, will result in higher expenses for repaying these debts.

On a more positive note, General Motors has seen a strong demand for trucks and SUVs, which has definitely helped on the revenue front. The company remodeled its crossover lineup and is now focused more exclusively on launching all-new full-size pickups and full-size SUVs. The demand for the company’s most popular brands in America a.k.a the top-selling models like Chevrolet Silverado, Equinox and GMC Sierra has continued to increase, which is also driving the top line.

From a liquidity standpoint General Motors has a pretty good overall standing. The company’s automotive liquidity came in at $40.5 billion in the December quarter, higher than $37.8 billion at the end of the July-September quarter. The company’s times interest earned ratio of 7.76 is higher than the industry’s 1.82, which lowers its default risk.

As all major auto makers out there, General Motors is dedicating a large portion of its R&D budget on electric and autonomous vehicle development as it is trying to adapt to the changing market dynamics and customer preferences. The top U.S. carmaker aims to spend more than $27 billion through 2025 to launch its next generation EVs powered by new-low cost batteries. From an investor’s point of view this is could be a solid catalyst for boosting the company’s long-term growth prospects. General Motors is still on track of delivering few key launches this in the coming months and years like the GMC Hummer EV, Cadillac Lyriq crossover EV and Cruise Origin AV. On the autonomous driving side General Motors’ Ultium Drive system along with collaborations with Honda and EVgo are likely to scale up and further develop its e-mobility position.

Technical Analysis

By looking at the daily chart, we can see the strong bullish rally that has occurred in the last 12 months taking the price from the March 18th lows of 2020 around $14 to the $63 all-time highs in the beginning of April, 2021. This represented an astonishing 350% gain for the stock in a year. However, the road to the above-mentioned all-time highs was not easy as it was filled with many different hurdles that the bulls had to overcome in order to keep pushing the price higher. There were few massive 15-20% corrective movements that took place during this strong uptrend, but the uptrend remained intact on all occasions. The stock has continued to attract a lot of investors’ attention as it remains the leader in the auto maker space. The way that General Motors has managed to evolve from an old fashioned auto manufacturer into an innovative, disruptive and forward looking designer, manufacturer and seller of all-around automobiles and auto systems globally has turned the stock into a go-to choice for both small retail and large institutional investors looking to add some auto and EV exposure to their portfolios.

We will start buying the stock between the $55-57 support area. Should the price drop further in the short-term, we would be buying even more aggressively at the next strong support at $50 where more buying pressure is expected and it would give us a chance to get a better average price on our long positions. Our initial profit-taking target is set at $70, followed by the next target at $77.5 where we would be fully cashing in our profits.

The stock is currently sitting at $57 per share, which is roughly 10% below its all-time highs of $63 per share. We saw that the stock found a lot of buying interest around the $55 level on three separate occasions in the last 2 months – once at the end of March, then again at the end of April and the most recent one on May 4th. The confluence of both the horizontal and diagonal support lines at that mark has brought a lot of buyers back to the market. Investors saw the opportunity to buy into one of the leaders in the auto and EV space at a 10% discount and at a relatively low P/E and PEG valuation and didn’t think twice about it. The recent failure of the price to break below the $55 support back in early May and the subsequent sharp price appreciation could be taken as a signal for the presence of a strong bullish interest. This in turn confirms that the long-term uptrend has resumed and that the current bullish run will most likely take the price to new all-time highs in the coming weeks.

Furthermore, we believe that the new $1.9 trillion stimulus package accepted in the US, will inject a lot of liquidity into the market, which will be a great short-term positive for the equity market. We expect most of the big tech names as well as other market favorites to restore their favorable image among traders and investors in the coming weeks, thus we anticipate that the XLY will be one of the best performing sector ETFs in May. We believe that the stock market in the US currently holds a lot of intrinsic risks – COVID-19, the newly formed office in DC, the economic recovery, the post-Brexit economic reality for the UK and EU etc. – and that we could be in for a sideways and choppy price action in the coming months. However, our analysis shows that the winners would most likely continue to win in the stock market. General Motors has definitely been one of the biggest winners in terms of stock price appreciation throughout the last 12 months, thus we are strongly bullish on GM’s stock in both the short and long term. Additionally, we are seeing GM as a great reopening play in the post COVID world. The most recent price corrections should be treated as a great opportunity to buy this strong performing stock at a remarkable discount, which would in turn give every investor a chance to maximize his profits to the upside. Moreover, some of the technical indicators that we are monitoring closely on a daily basis (50 DMA, 100 DMA, Bollinger Bands, RSI etc.) have already retraced from their overbought conditions and are signaling that the uptrend might be returning pretty soon. In addition to that, it is important to note the fact that the XLY and the Consumer Discretionary sector as a whole would continue to attract a lot of the investors’ attention moving forward, as consumers are sitting on record levels of savings and are eager to spend. This makes us optimistic for the future performance of GM as a meaningful part of the ETFs structure. Our analysis shows that as a result of the great leadership performance by the senior management of the company and the phenomenal fundamental positioning of GM through its newly updated portfolio of products, the stock will be able to hold its ground better than some of the other stocks out there in the event of a correction, and it would also significantly outperform the broader market once the uptrend resumes.

Acknowledging the fact that we are in a position to buy the stock at a 10% discount from the all-time high levels, we would like to point out that buying at these levels would be suitable for both risk-oriented and risk-averse investors. Thus, we are currently looking at the $55-57 range as a great accumulation zone for the stock. Our take profit levels in the coming months are going to be $65 and $75 respectively.

Ebay Inc. (EBAY)

Company background

eBay Inc. is a global commerce leader that connects millions of buyers and sellers around the world. Headquartered out of San Jose, California and founded back in 1995 the company exists to enable economic opportunity for individuals, entrepreneurs, businesses and organizations of all sizes. eBay’s portfolio of brands includes eBay Marketplace and eBay Classifieds Group, operating in 190 markets around the world. With over 1.7 billion listings, 185 million buyers and over 1,500 cities with classified eBay listings it is safe to say that the company is one of the major and most dominant players in the global eCommerce industry.

eBay’s Marketplace platform has seen wide adoption and strong performance across all of the served markets, which in turn is expected to have driven the top line in the to-be-reported quarter.

Furthermore, eBay’s revenues are also expected to have improved throughout the past quarter as a result of the strong growth in online consumer spending due to broad-based and increasing social distancing.

Back in Q4 2020 eBay reported a wide spread adoption of the company’s managed payments system, which we believe was more than a singular event related to Q4 last year, but rather a major positive catalyst that will continue to develop favorably for the company in the quarters and years to come.

Current position – Financial Performance & Future Growth Prospects

The company has witnessed a solid Marketplace performance, which has been eBay’s main growth driver ever since the company separated from PayPal back in 2015. Furthermore, eBay has also seen an uptick in its Promoted Listings category, which shows more engagement and trust with the platform. Additionally, the company has managed to capitalize on the strong growth in new clients, mainly driven by the pandemic, by introducing these clients to eBay’s managed payments offerings where the company has higher profit margins. Furthermore, we expect to see continued strength in the online shopping segment, despite the fact that the economy is slowly reopening and things are supposedly going back to “normal”. Throughout the many lock downs that we experienced last year, many people found out that they can buy almost everything they need online and in most cases at a better price as well. Thus, while there will definitely be a certain percentage decline in online shopping when compared to last year, we are positive that this will be a multi-year growth theme that eBay is well positioned to capitalize on. Last but not least, the company has been working on a lot of growth initiatives in attempts to enhance the seller experience on the platform by offering innovative seller tools and delivering a better buyer experience by utilizing structured data. The stock has been in an out-performance stage for over a year now, and we expect to see a relatively stable performance by eBay moving forward.

Ebay has also made meaningful improvements in the mobile version of their platform, as the company has been able to identify the strong growth in mobile commerce volumes in recent quarters. However, as of this point the total business volumes coming out of the mobile segment is still relatively low when compared to the rest of the platform. The main reason for that is associated with the low individual contribution that mobile users are completing as they are mainly a younger demographic, often located in various emerging markets. In order to breathe new life into users’ mobile experience, eBay is continuously looking for ways to improve, redesign and restructure its mobile apps for improving their speed and usability. Another interesting penetration strategy frequently used by eBay for its mobile segment is the pushing up of auction rates, since mobile alerts are particularly helpful in this regard and help a buyer to stay in connection for a longer period of time.

From a financial standpoint, eBay reported first-quarter 2021 non-GAAP earnings of $1.09 per share, beating the estimates by 1.5%. The bottom line also improved 59% year over year and 26.7% sequentially.

Net revenues of $3.02 billion surpassed the estimates of $2.95 billion. Further, the figure increased 42% from the year-ago quarter on a reported basis and 38% on a FX-neutral basis. Also, the figure rose 5.4% sequentially.

As of Mar 31, 2021, cash equivalents and short-term investments were $3.4 billion, down from $3.8 billion as of Dec 31, 2020.

Further, long-term debt was $5.9 billion at the end of the reported quarter compared with $7.7 billion at the end of the last reported quarter.

The company generated $1.04 billion of cash from operating activities in the first quarter, up from $758 million in the previous quarter.

Its free cash flow came in at $855million in the reported quarter.

Further, the company repurchased $292 million worth of shares and paid out dividends of $122 million in the reported quarter.

Technical Analysis

By looking at the daily chart, we can see the strong bullish rally that has occurred in the last 12 months taking the price from the March 23rd lows of 2020 around $25 to the $65 all-time highs in mid-April, 2021. This represented an astonishing 160% gain for the stock in a year. However, the road to the above-mentioned all-time highs was not easy as it was filled with many different hurdles that the bulls had to overcome in order to keep pushing the price higher. There were few massive 15-20% corrective movements that took place during this strong uptrend, but the uptrend remained intact on all occasions. The stock has continued to attract a lot of investors’ attention as it remains one of the leaders in e-commerce. The way that eBay has managed to evolve from a relatively small community user-based auction site to a worldwide commercial giant has turned the stock into a go-to choice for both small retail and large institutional investors looking to add some e-commerce exposure to their portfolios.

We will start buying the stock between the $55-57 support area. Should the price drop further in the short-term, we would be buying even more aggressively at the next strong support at $50 where more buying pressure is expected and it would give us a chance to get a better average price on our long positions. Our initial profit-taking target is set at $65, followed by the next target at $75 where we would be fully cashing in our profits.

The stock is currently sitting at $58 per share, which is roughly 10% below its all-time highs of $65 per share. We saw that the stock found a lot of buying interest around the $53-55 support zone, which was the 4th time this has happened since the beginning of the year. The confluence of the horizontal, diagonal and 100 DMA dynamic support lines there has continued to bring a lot of buyers back to the market every time the price drops there. In the aftermath of the Q1 earnings call where the company delivered a very poor guidance for the upcoming quarter, smart investors saw the opportunity to buy into one of the leaders in the e-commerce space at a 10% discount and at a relatively low P/E and PEG valuation and of course didn’t think twice about it. The recent failure of the price to break below the $55 support back in early May and the subsequent sharp price appreciation could be taken as a signal for the presence of strong bullish interest around the above-mentioned support levels. This in turn confirms that the long-term uptrend will most likely be resuming soon and that the next bullish run will most likely take the price to new all-time highs in the coming weeks.

Furthermore, we believe that the new $1.9 trillion stimulus package accepted in the US, will inject a lot of liquidity into the market, which will be a great short-term positive for the equity market. We expect most of the big tech names as well as other market favorites to restore their favorable image among traders and investors in the coming weeks, thus we anticipate that the XLY will be one of the best performing sector ETFs in May. We believe that the stock market in the US currently holds a lot of intrinsic risks – COVID-19, the newly formed office in DC, the economic recovery, the post-Brexit economic reality for the UK and EU etc. – and that we could be in for a sideways and choppy price action in the coming months. However, our analysis shows that the winners would most likely continue to win in the stock market. Ebay Inc., has definitely been one of the biggest winners in terms of stock price appreciation throughout the last 12 months, thus we are strongly bullish on Ebay’s stock in both the short and long term. Additionally, we are seeing eBay as a great way of playing the e-commerce boom without having to pay the mindblowing valuations of the likes of Amazon. Furthermore, the interest in buying and selling sports cards is growing by the day and ebay is the go-to platform for sports cards investors. The most recent price corrections should be treated as a great opportunity to buy this strong performing stock at a remarkable discount, which would in turn give every investor a chance to maximize his profits to the upside. Moreover, some of the technical indicators that we are monitoring closely on a daily basis (50 DMA, 100 DMA, Bollinger Bands, RSI etc.) have already retraced from their overbought conditions and are signaling that the uptrend might be returning pretty soon. In addition to that, it is important to note the fact that the XLY and the Consumer Discretionary sector as a whole would continue to attract a lot of the investors’ attention moving forward, as consumers are sitting on record levels of savings and are eager to spend. This makes us optimistic for the future performance of eBay as a meaningful part of the ETFs structure. Our analysis shows that as a result of the great leadership performance by the senior management of the company and the phenomenal fundamental positioning of eBay with the large number of growth-related initiatives, the stock will be able to hold its ground better than some of the other stocks out there in the event of a correction, and it would also significantly outperform the broader market once the uptrend resumes.

Acknowledging the fact that we are in a position to buy the stock at a 10% discount from the all-time high levels, we would like to point out that buying at these levels would be suitable for both risk-oriented and risk-averse investors. Thus, we are currently looking at the $55-57 range as a great accumulation zone for the stock. Our take profit levels in the coming months are going to be $65 and $75 respectively.

Sincerely,

This image has an empty alt attribute; its file name is logo.svg

Add a comment