Wednesday, July 2, 2008

Merrill Analyst Says Buy GM at $40 and Sell It At $11

A Merrill Lynch analyst put out some groundbreaking research on GM this morning 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?
Since he didn't issue an apology with his downgrade to make up for being so incredibly ridiculously behind in following the GM headlines, I'm assuming he's not the least bit sorry for losing so much money for investors.  What I find even more absurd is that the stock actually sold off an additional 8% on the downgrade.  Who are the investors that use Merrill Lynch as their sole source of news?  How can anybody still be surprised by a report that claims that GM could go bankrupt?  Did someone actually receive this research report and then call every one of his brokers and scream "Sell all my GM!  All of it!  My analyst told me it might go bankrupt!"  It is price action like this that makes me a serious doubter of the "efficient market" hypothesis.  How on earth can all the negative news be priced into stocks when somebody actually thinks an analyst's opinion matters?     


underdog said...

So the analyst thought that a mortgage meltdown and $4+ gas was going to be a boon for a company that sells the Hummer AND finances mortgages. Makes GM's new 72 hr sale for 0% financing for 72 months sound prophetic. Could 72 hours mark the end of the sale and GM?

K10 said...

It's remarkable how bad some of the forecasting skills are among Wall Street analysts. It really makes you wonder if they are complete idiots or just seriously conflicted.