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 upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of General Motors Company (NYSE:GM) slipped 2% in premarket trading Wednesday after Morgan Stanley downgraded the auto giant from equalweight to underweight.
So what: Along with the downgrade, analyst Adam Jonas lowered his price target to $33 (from $49), representing about 4% worth of downside to yesterday's close. While contrarians might be attracted to GM's price weakness in recent months, Jonas' call could reflect a strengthening bearishness on Wall Street about its financial and competitive position.
Now what: According to Morgan, GM's risk to reward trade-off is pretty balanced at this point. Jonas said:
GM is highly levered to a cyclical recovery in the North America car market, augmented by an aggressive product revival. The biggest fundamental opportunity for the 'new GM' is to take risk on the top line (new products and technology) that its predecessor was never able to adequately withstand. GM will need to muster every bit of its financial and technological resources to make the transition to advanced powertrains, connected vehicles and, ultimately, autonomous cars.
Of course, with the stock now off about 20% from its 52-week highs, and boasting a 3%-plus dividend yield, that uncertainty could be providing patient Fools with a juicy long-term income opportunity.
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.