This Week's Worst Analyst Calls (MER, GM, GS, UAUA)

There were two ghastly research calls this week from separate firms on separate companies.  While one is more severe than the other, these two analyst downgrades are essentially a tie for the severity of tardiness.  In fact they are such late calls and so far behind the pack that it is a real wonder as to just how much the research teams that just discovered these issues actually get paid.  It’s hard to imagine being an institutional portfolio manager and receiving the call for these downgrades on Wednesday this week.  The answer was probably, "OK, well thanks I guess.  Did your analyst just start reading the newspapers from February or something?  These calls might have had worth then…. urgh… Yeah, you too… have a great long weekend."

The first horrific call goes to Merrill Lynch (NYSE: MER) for the downgrading of General Motors (NYSE: GM) all the way to an UNDERPERFORM rating from a BUY rating and a target slash from $28.00 down to $7.00.  We do not disagree with the logic at all and we also made our own odds about the chances of bankruptcy protection being in the realm.  But the timing of this call was out of the land of "Duh!" and so far behind.  It also had a severe impact on already battered GM shares.  Technically analyst calls are not chart issues, but this was already near 50-year lows and went even lower.  GM closed down at $9.98 after the downgrade.  It seems that a pinched consumer, high gas prices affecting SUV sales, credit-pinched consumers, high materials costs, and the company’s losses are all somehow a new event for this analyst call.  Once again, the problems are real and we concur that issues will persist (including liquidity) into 2009… But the poor timing of this call was extremely severe.

The second call that was just as bad was the Goldman Sachs (NYSE: GS) call where the firm downgraded UAL Corp. (NYSE: UAUA).  Yes this one just stunk and its timeliness would lead one to believe that the research team was hanging out in smoking jackets with Jimmy Cayne behind the building too long.  UAL’s rating was downgraded from a BUY to a NEUTRAL and the $16.00 Target Price was taken all the way down to $4.60.  Maybe the analyst had to wait for the last brokerage client to sell this stock.  Maybe the analyst had to wait for the trading department to get on all the trades.  We don’t argue with the problems posed, but this was on the "America’s Buy List" for almost the entire way down.  We ourselves have issued our own odds that UAL’s parent could file for protection under bankruptcy.  But this analyst call is so late that we think the team must be still counting ballots from 2000 and determining what a hanging chad is.

• So here are our own internal odds that many other major US listed household brand companies could have to seek bankruptcy protection by late in 2008 or early 2009.  We think you might also see a forced merger among US AUTOS, although even that might not help.  Kirk Kerkorian may be in the cat bird seat at Ford now… if he still wants it for some reason.

We wanted to award these two calls the same award yesterday, but with another half-day to go we had to see if any similar calls could have even been worse than these. 

Jon C. Ogg
July 3, 2008