Why General Motors Company Shares Could Stall

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.

Read/Post Comments (1) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 26, 2014, at 7:32 AM, funfundvierzig wrote:

    60 recalls, 30 million-plus defective GM cars. But those shoddy-designed and built cars are practically all in the United States.

    Given the global sharing of design, engineering, and parts and subsystems, will there be massive recalls mandated for defective GM cars and trucks in Europe? China? South and Latin America?

    Stay tuned. The mendacious Management of GM is only in the third or fourth inning of their waxing colossal consumer product fraud and cover-up.


Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3045026, ~/Articles/ArticleHandler.aspx, 8/28/2015 8:40:52 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Brian Pacampara

I take a look at big 10% moves, as well as stock-shaking analyst calls, on a daily basis for The Fool. While I don't believe in active trading, closely monitoring Mr. Market's mood swings can help identify long-term opportunities.

Today's Market

updated Moments ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:00 PM
GM $29.00 Up +0.42 +1.47%
General Motors CAPS Rating: ***