Merrill Analyst Says Buy GM at $40 and Sell It At $11
A Merrill Lynch analyst put out some groundbreaking research on GM claiming that bankruptcy was an option for the auto company. He reversed his prior buy recommendation (issued in February 2007 when the stock was at $40) and cut the stock to an “underperform” now that it is trading below $11. I’m not quite sure what caused the analyst to change his formerly bullish opinion. Perhaps it was based on one of the following reasons?
* GM’s debt is trading and has been trading at distressed levels for some time.
* GM’s credit default swaps are already pricing in a 75% probability that the automaker will default on its debt within the next 5 years.
* Car sales have been in a steep decline and the auto industry just reported a roughly 20% decline in sales for the month of June.
* GMAC, the financing arm still 49% owned by GM, had to completely restructure its financing because its mortgage lending arm ResCap came dangerously close to declaring bankruptcy.
* GM’s stock is down 56% year to date.
* The analyst needed to change his recommendation ASAP so he could tell everyone that he warned them of GM’s bankruptcy, thus justifying his existence.
K10 asks, “Who are the investors that use Merrill Lynch as their sole source of news?”
Good question. I’m very much an amateur investor and I learned 30 years ago that Merrill-Lynch was full of crap. 50 years ago I learned that GM was incompetent and full of crap.
What’s left to discover?
