Why Ford, GM Shares Could Continue to Accelerate

Ford Motor Company (F) and General Motors Company (GM) are representative of the outperforming, underloved auto sector

Jan 4, 2017 at 12:33 PM
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Detroit darlings Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM) are driving higher following stronger-than-expected December auto sales data. And, from the looks of it, both stocks -- as well as the auto sector in general -- could have more fuel left in the tank.

Starting with the big-picture data, our internal Sector Scorecard shows auto stocks are in a strong technical position. Of the 30 names we follow, the average year-over-year return is an impressive 24%. What's more, 83% of these stocks are perched above their 80-day moving averages.

However, skepticism levels are lofty. Fewer than 50% of the analysts tracking these stocks have handed out "buy" recommendations. Plus, the average short-interest ratio is 6.41, suggesting there is usually more than a week's worth of buying power sitting on the sidelines for each stock, at its average daily volume.

Focusing now on Ford, the stock has jumped 4.6% to trade at $13.16. Plus, the shares are above their 320-day moving average, which rejected previous rallies in July and December. Relative to its November low, the stock has surged nearly 19%. Things could get even more volatile this week, according to a Goldman Sachs analyst, with the Consumer Electronics Show (CES) around the corner.

ford daily jan 4

Expectations are rising in the options pits. Based on Trade-Alert, buy-to-open activity is transpiring at a number of call strikes. By far the most action has gone off at the now in-the-money January 2017 13 strike, with buyers banking on extended gains for F stock through the close on Friday, Jan. 20.

However, not everyone's sold on shares of Ford Motor Company. In particular, 11 of 15 analysts rate the stock a "hold" or worse. Therefore, F has the potential to build on its gains, assuming some well-deserved upgrades come down the pike.

Shifting gears, GM has matched its rival's success on the charts today, up 4.6% at $36.78. Since bottoming in mid-2016, the shares have sped to a 34.5% gain.

Yet, expectations on the Street are far from glowing. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), GM has racked up a 10-day put/call volume ratio of 2.26 -- just 3 percentage points from an annual peak. While some put buyers may be shareholders hedging against a pullback, a capitulation among "vanilla" bears could fan the stock's flame.

What's more, General Motors Company could stand to benefit from upgrades. After all, three-fifths of covering analysts rate the auto stock a tepid "hold."

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