Two "Zombie" Firms Coming Back to Life

Happy Halloween! Let's talk about what's moving the markets this morning.

The macro view
There are at least four reasons we could witness a volatile session in stocks today as markets resume trading after a historic two-day closure due to hurricane Sandy. However, investors appear to be in a sunny disposition this morning, with the Dow Jones Industrial Average (INDEX: ^DJI  ) and the broader S&P 500 (INDEX: ^GSPC  ) up 0.36% and 0.17%, respectively, as of 10:15 a.m. EDT.

Still, according to data compiled by Bloomberg, the trailing-12-month profit margin for the S&P 500 (excluding banks) declined from 9% to 8.9% -- the first retreat following a three-year period that saw margins widen 1.6%. Knowing that that three-year run witnessed the largest expansion ever recorded makes me feel a bit better about being much too early in emphasizing the risk that profits margins would revert to the mean.

The micro view
General Motors (NYSE: GM  ) reported third-quarter results before the opening, earning $0.93 per share (excluding one-time items), smashing expectations of $0.60. Performance was strong worldwide -- with the notable exception of Europe, where the automaker expects to lose between $1.5 billion and $1.8 billion this year.

It was a similar story for competing auto manufacturer Ford (NYSE: F  ) , which reported its results yesterday. Ex-items, Ford earned $0.40 per share against a consensus estimate of $0.30 but announced plans to close three European plants in order to stem losses in the region the company predicts will reach $3 billion over two years. This month, Fool analyst Brendan Byrnes wrote that "the recent dip in Ford's share price presents an extremely attractive entry point for long-term investors." Click here to request his premium report on the stock, along with a full year of updates on how Ford's story unfolds over the next 12 months.

Alex Dumortier, CFA has no positions in the stocks mentioned above; you can follow him @longrunreturns. The Motley Fool owns shares of Ford. Motley Fool newsletter services recommend Ford and General Motors Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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