Shares of This Transformed American Icon are Set to Take Off


We are finally seeing signs of life in this critical U.S. industry. Rocked by overspending, hubris and economic crisis, this once mighty segment of theeconomy was reduced to a mere shadow of itself. 

Fortunately, things are quickly changing for the better in this nearly left-for-dead sector.

In fact, January 2013 was the industry's best January since 2008. U.S. sales soared 14% to more than 1 million units compared with the year-ago period, while individual companies reported between 16-27% sales gains during the same period. Total unit sales hit more than 15 million in the first month of the year, signalling an even better year than 2012, granted sales continue on this trajectory. 

The surgingstock market , with the S&P 500 posting its top-performing January in more than 12 years, combined with a slow-but-steady improvement in the U.S. employment picture have fuelled the rebound. Clearly, this industry rises and falls in lock step with the U.S. economy, so it's often viewed as aproxy for the entire domestic economy. 

In case you haven't guessed it yet, I am talking about the auto industry. 

With this kind of growth potential in mind, one company stands out for its leading 19% share -- General Motors ( GM ) .

Let's drill down into the company's most pertinent facts and figures to determine whether aninvestment makes sense.

Just behind GM is  Ford ( F ) , which has a 16% market share, and Toyota Motor Corp. ( TM ) , with a little more than a 15% share of the U.S. market, which shows that GM has been through quite the rollercoaster ride in the past five years. This includes aChapter 11 reorganization in 2009 and an incredible comeback about two years later, when it reported recordearnings of $7.6 billion, or $4.58 a share, just two years later.

The 2012annual report is set to come out on Thursday, Feb. 14, and it looks like 2013 is on the right track to set another record for the company.

"Looking at what we are going to make from a financial standpoint as we close the year, I think we have done a great job in North America," Mark Reuss, General Motor's North American president, said when the company reported monthly sales last December.

GM'sprofit centers are in North America and China, with projected adjusted earnings of a little more than $1 billion for 2012, while Europe has been posting losses. The European losses are projected to be as much as $600 million in the last quarter of 2012. GM has responded by cutting costs and introducing new models, but supply still outstrips demand. 

It's important to remember that General Motors took on the moniker "Government Motors" because of its 2009bankruptcy and government bailout. The government still owns nearly 20% of the company's stock even after GM bought back 200 millionshares in December 2012. 

Looking at the technical picture, shares are off their early January highs of just above $30, but are holding solidly above the 50- and 200-day simple moving averages. There is a solid uptrend evident in the 50-day simplemoving average . The 200-day average has started to turn upward.

Risks to Consider: Things are improving economically and the government still supports a portion of General Motors. However, buyingstocks in anticipation of earnings can be very risky. In addition, a bet on GM is a bet on the U.S. economy. Should the economy fall back into the doldrums, GM is sure to follow.

Action to Take -- > This stock is appealing now, on the eve of its earnings report. Despite all the high expectations for record numbers, the stock price has not reacted yet. Should the anticipation be correct, shares would react favorably to positive numbers on Feb 14. 

Don't wait until the stock moves higher when the company releases -- and meets -- its earnings expectations as I thinkwill be the case. Now is a good time to establish a position. Entering now, with stops at $27 and a $50, 18-month target price makes solid sense.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ, Inc.

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This article appears in: Investing , Investing Ideas , Stocks

Referenced Stocks: F , GM , TM



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