Why General Motors Company Shares Could Stall

Does this analyst make a good case? Or is it just more noise from Wall Street?

Jul 25, 2014 at 2:11PM

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.

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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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

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Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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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