GM’s shares are trading just above $10 a share this afternoon. According to the WSJ’s David Gaffen, GM shares haven’t traded below $10 a share since September 1954. Now that’s something you don’t see every day!
Yesterday, GM rallied on better than expected (though still bad) June sales (GM Press Release).
Today, they are selling off on a scathing downgrade by Merrill Lynch analyst John Murphy who cut his rating from “Buy” to “Sell” and his price target from $21 to $7.
The big impact the report has had stems from its suggestion that bankruptcy is possible. Given GM’s huge cash burn (about $3 bil a quarter) its $24 billion cash pile might not last long. Further, given the strain in capital markets it might not be easy to raise money. GM’s bonds are trading with yields around 18% and an equity offering would massively dilute shareholders.
This is a scary thought and the stock is showing it. That said, at some point enough is enough, at least for a short term bottom, right? Maybe today is the day (GM 5 Year Chart).
For some interesting recent analysis of GM see (I formatted these as PDFs so you can click on the links and see the full articles):
“Can Teflon Last For GM’s Wagoner?”, The Wall Street Journal, Wednesday July 2, 2008 B2
“Buy GM”, Barron’s, Saturday May 31, 2008
Disclosure: Top Gun has no position in General Motors (GM) shares but I am personally long them.