WaveStrength Trading Tactics for November 22, 2006
GM In China and India
by Bryan Bottarelli
On the first trading day of the 2006 calendar year, shares of General Motors Corp. (GM:NYSE) traded for $18.23. Over the next 11 months, GM has mounted a strong recovery, trading as high as $36.56 on October 24, good for a straight 100% gain. This return made GM the top gainer on the Blue Chip average in 2006.
But lately, shares of GM have come down. So it may be a good time to enter into longer-dated calls. In today’s action, for example, shares of General Motors were off more than 3%. Over the last three trading sessions, the shares have shed 11%, taking them down to their lowest levels since October 11.
Fueling the sell-off is the perception that the automaker's restructuring is far from over, despite the fact that GM revamped its key North American operations and instituted labor and health care cost savings that could add up to $6 billion this year.
Another ripple effect of the three-day sell-off comes from GM’s largest shareholder, billionaire investor Kirk Kerkorian, who decided to increase his stake in MGM Mirage Inc. (MGM:NYSE). This is perceived as negative for GM, since investors hoped Kerkorian would continue adding to his GM position.
Now here’s what I find interesting about GM: When you look at the news driving the stock performance, 90% of the issues surround domestic concerns.
But get this…
Although GM isn’t considered a “luxurious” brand name here in America, it IS considered top of the line in China and India. And that’s GM’s biggest opportunity.
You see, Americans have 148 million cars right now and the Chinese have only 19 million. India has only 9 million cars! By 2050, it’s projected that China will have 514 million cars and India will have 610 million. That’s a respective increase of 247% and 3,100%. Staggering! As GM is looked upon favorably in China and India, GM’s sales could be explosive.
Based on these projections, GM’s largest growth sector is undoubtedly found in China and India. And when you put GM’s current stock price in an international context, this three-day sell-off could be an opportunity to buy for the long term.
Just something to think about as you enjoy your Thanksgiving meal tomorrow.
Have a great holiday and we’ll talk again next week!