Wednesday's Market Minute: GM Could Turn Day-Traders Into Value Investors

Traders are getting excited about General Motors Company GM for the first time in years because its electric vehicle efforts finally seem to be adding up. I'm excited about it because it's the perfect stock to usher in the next phase of the market.

Last week, a string of Wall Street analysts upgraded the company after CEO Mary Barra showed off some cool stuff and big goals at the Consumer Electronics Show. It's all pretty exciting, for sure, and it stands to reason that GM stock should probably trade at a valuation more in line with the neophyte car players, considering that GM, you know, sells millions of cars every year. But GM stock may be more than a temporary trading playground. GM is notably cheaper than the broader market and obviously nowhere even close to the standard pure-EV play. After years of being forgotten by the market, GM is in just about every value index and ETF around. Yet, if EVs truly are about to take over the highways, GM should have as good a growth story as any out there. In other words, General Motors sits at a unique juncture between the two predominant macroeconomic themes at work in the stock market: the non-stop speculative fervor of expensive growth stocks, and the months-long budding value rotation. Technically speaking, value stocks have outperformed growth since September and small-caps have beaten the S&P 500, but there are dozens of growth stocks from the quarantine era still going parabolic.

Virus curves in the U.S. are peaking again, vaccines are getting rolled out, and fiscal support is on the way. The fundamental setup for more value-stock performance looks compelling, but short-term trading in bubbly growth stocks is still gobbling up all the trading flow because no one wants to miss out. Enter GM. It's the perfect gateway stock to turn short-term traders into value investors. GM's option trading is exploding right now because the headlines are flashy and promise big things in the future, but at its core it's a beaten-down cyclical stock that needs the economy to make a full recovery. It's at the nexus of the stock market universe. If an old stodgy car company can capture the attention of short-term traders, banks or hotel stocks could be next if the economy actually reopens. Line up the trading flow with the fundamentals, and the value rotation could be in store for another massive breakout.

Photo by Diego Jimenez on Unsplash