Over the next week 24/7 Wall St. will set mid-year price targets (June, 30, 2007) for the sixty most widely traded stocks. These targets will be based on past price performance, industry activity, forward projections of financial performance, outside analyst opinions, and research conducted for doing past articles on these firms. The price targets assume flat markets over the next six months. In other words, if the Nasdaq moved up 25% between now and mid-year, the target share price targets would probably be too low. If the market moved down by 20%, they would probably be too high.
General Motors. (GM) Some Wall St investors think GM’s stock has risen too much in the last year to make it a possible “buy”. In other words, the turnaround, to the extent that it is a turnaround, is already priced into the stock. GM has cut its $9 billion a year in costs, and sold assets like a piece of GMAC. Market share will probably drop again in North America during 2007, and the big car company will continue to do well in overseas markets like China. GM’s management has even said it would sacrifice US share for more profitable sales.
There are others in the investment community who think the run at GM is not over. Forbes and Thomson’s IBES have polled analysts and think that, based on their methodology, GM will have an upside earnings surprise for Q4.
GM is doing a lot of the right things. It is rapidly entering the crossover, small SUV market and also working on smaller, fuel-efficient pick-ups. Forty percent of the cars in dealers this year will be new models. The company also says that it can further reduce costs. And, the fact that the company now sells more cars overseas than in the US is something of a buffer for doing business in the tough North American market
Whether Toyota overtakes GM as the world’s largest car-maker is academic for GM’s share price. The gamble is whether its profit-per-car in the US can move up. Most of what GM is doing seems to point that way.
Factors that could push shares above forecast: If GM can hold US share while offering fewer discounts, Wall St. will cheer. GM is now the largest car manufacturer in China. If it can keep it rapid sales growth there going, it should add a lot to the company’s financial performance.
Factors that could push share below forecast: The bear case on GM is that profit per car in the US will not improve. If that is right, the shares should get knocked.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
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