Auto Stocks Go Head to Head
Monday, June 20th, 2005
By George Leong, B.Comm. for Profit Confidential
In recent columns, I’ve discussed the troubles brewing at General Motors Corp. (NYSE.GM). If you don’t remember, let me recap. I believe GM has a very difficult road ahead of it. The world’s largest automaker is rapidly losing market share in the United States and could soon be overtaken by Japanese powerhouse Toyota Motor Corp. (NYSE/TM). Now that is a scary thought!
How can GM with all of its traditions fall victim to the Japanese, especially on its home turf? I truly believe success in the auto sector is all about innovation and reliability. GM, in my opinion, has not been innovative in its research and development. And, worst of all, its reliability is suspect.
The reality is consumers have become more quality conscious and are not interested in buying vehicles that will have higher than average maintenance costs down the road. That’s why more and more are buying Japanese, Swedish, and German vehicles. They are innovative and reliable.
But here is an interesting development. Did you notice the price action of GM stock versus its Japanese counterparts over the recent five-day period?
In a bout of active buying, GM stock has been rallying, appreciating a whopping 47.34% to over $36 from its recent low of $24.67 on April 19. Explain this to me? I must be missing something? Or perhaps I simply just missed out on what would have been an excellent trade.
During the same time period, Toyota’s stock declined 1.28% from $72.65 to $71.72. And Nissan Motor Co. Ltd. (NSANY) during the same period advanced a mere 0.08%.
It may be GM’s recent selloff created a wonderful buying opportunity. Was GM at $24.67 and then at $30 such a steal? Perhaps billionaire Kirk Kerkorian, who recently purchased 40.9 million shares of GM, knows something we don’t. Maybe it’s GM’s aggressive foray into the massive market in China that will save the company. Will this help offset declining sales at home? I’m not convinced the upward price trend is justified given the circumstances at GM.
So where am I going with this? As a trader, I would look at the comparative valuations of GM versus either Toyota or Nissan and say there’s something wrong with their respective charts.
I say the market is not behaving rationally. Perhaps we should sell GM and buy Toyota or Nissan. Makes an interesting trade, don’t you think? Just my humble opinion…
Next Post: People Helping People Make BusinessWeek’s List
Previous Post: Top stock picker delivers 100% gains 32 times
Tags: stock analysis, stock market, stock prices
Tweet
Sign Up for PROFIT CONFIDENTIAL and
receive a FREE copy of our exclusive report:
"A GOLDEN OPPORTUNITY FOR STOCK MARKET INVESTORS"
We respect your privacy and
will never share your e-mail address.
George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.
