While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of General Motors (NYSE:GM) slipped about 1% in pre-market trading Friday after the auto giant's second-quarter earnings report yesterday prompted a downgrade from Deutsche Bank.
So what: Along with downgrading GM from buy to hold, analyst Rod Lache reiterated his price target of $41, representing about 15% worth of upside to yesterday's close. So while contrarian traders might be attracted to GM's earnings-related pullback Thursday -- quarterly earnings plunged 80% on massive recall expenses -- Lache's call could reflect a sense on Wall Street that the automaker's headwinds are just too strong to allow for a significant rebound.
Now what: Deutsche offered three reasons for the downgrade: a deceleration in contribution margins, lower free cash flow, and most importantly, uncertainty over GM's longer term outlook. "With limited free cash flow support for valuation through 2015, we are looking into potential drivers of valuation in 2016 and beyond. At this point we don't see compelling drivers of multiple expansion in this timeframe," said Lache.
Of course, when you couple GM's still substantial progress in North America and Europe with its suddenly weak stock price -- shares are now off about 15% from their 52-week high -- those concerns might provide patient Fools with a juicy decade-long income opportunity.
Risk-free for 30 days: The Motley Fool's flagship service
Tom and David Gardner founded The Motley Fool over 20 years ago with the goal of helping the world invest...better. Their flagship service, Stock Advisor, has helped thousands of investors take control of their financial lives and beat the market. Click here to sign up today.
Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends General Motors. 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.