Why General Motors stock jumped 27% last month

A solid earnings report and acceleration toward producing electric vehicles gave the stock a bounce.

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A car in front og the general Motors building

Image source: General Motors

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened

Shares of General Motors (NYSE: GM) were revving higher after the automaker delivered a strong third-quarter earnings report and benefited from bullish sentiment in the electric-vehicle sector as investors are beginning to appreciate the company's exposure to EVs. 

Consequently, the stock finished the month of November up 27%, according to data from S&P Global Market Intelligence. It also benefited from broad market trends around coronavirus vaccine news and a positive response to the election results.

As you can see from the chart below, General Motors stock gained consistently over most of November following its earnings release at the beginning of the month.

GM Chart

GM data by YCharts

So what

General Motors shares rose 5.4% on 5 November after the company smashed through estimates in its Q3 report. Automakers have bounced back rapidly from the early days of the pandemic as demand for vehicles has soared in part because of an aversion to public transportation, and General Motors has been a beneficiary. Profits jumped thanks to consumers buying higher-margin SUVs and crossover vehicles.

The company's revenue in the quarter was flat at $35.5 billion, which essentially matched estimates. However, the factors above as well as cost-cutting and fewer markdowns drove a surge in adjusted earnings per share from $1.72 a year ago to $2.83, well ahead of the consensus at $1.38.

The following week the stock climbed again on news that Pfizer and BioNTech had produced a successful coronavirus vaccine and that General Motors said it would hire 3,000 engineers to accelerate its push into electric vehicles and autonomous vehicles (AVs). The week after that, General Motors again asserted that EVs were a priority, stating that it planned 30 electric-vehicle launches by 2025.

With the market now viewing traditional combustion vehicles as a declining industry, it's key that the automaker pivot toward new technologies.

Now what

Towards the end of the month, General Motors restructured its partnership with Nikola and said it would not take a $2 billion stake in the EV start-up, though GM still plans to supply fuel cell systems to the company. 

As it focuses on EVs and AVs, General Motors offers investors an interesting opportunity since it is still priced as value stock even though it could be a leader in those new sectors. The challenge for General Motors will be to manage the decline of tradition combustion vehicles while transitioning to EVs and AVs.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Jeremy Bowman has no position in any of the stocks mentioned.  The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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