Should You Be Buying GM Stocks?
If you have been following the news, then you must have noticed that General Motors Co. (GM, +0.59%) has been in the headlines quite often lately and definitely not for all the right reasons. There is no doubt that GM used to be a great iconic car company but in recent times, the company simply can’t seem to get anything right. On Tuesday, it was reported that Sergio Marcionne, the CEO of Fiat Chrysler Automobiles (NV FCA, -1.73% FCAU, -1.48%), is currently enlisting activist investors in order to urge GM into a merger. GM has made it quite clear that they not interested in a merger with Fiat as it would simply interrupt GM’s efforts to improve its own operations. Added to this, on Tuesday, it emerged that GM could face wire-fraud charges as a result of the company’s ignition-switch scandal. While we cannot forecast the future, it has been speculated that the settlement could start at $1 billion. To put this into perspective, this is approximately one third of GM’s $2.8 billion net income for all of 2014. GM currently holds 17.7% of the market share compared to 26 percent in 2005. Luckily for GM, their light trucks sales are up 18% compared to a year ago while their year-to-date sales increased by 4.9 percent. On the upside, it is evident that GM’s 10 year decline is finally stabilizing and the company is also currently priced at 16 times earnings. Analysts on Wall Street are also bullish on GM with 11 analysts recommending a buy for the stock. Also, the consensus price target is $42.63. So if we weigh up the good and the bad, we could say that GM still has the fundamentals in place in order to be successful. The question though is -are investors willing to take a chance on this company?
In U.S. trading on Tuesday, U.S. stocks traded higher pushing the main indices on track to breaking a 3-day losing streak. Until now, stocks have been lower as a result of investor concerns regarding the timing of interest rate hikes by the Federal Reserve. On Tuesday, Treasurys in the U.S. sold off and as a result, the 10-year note yield rose 4 basis points to 2.43 percent while European government bonds also saw yields rise. At the close of trading, the Dow Jones Industrial Average (DJIA) advanced 0.1%, or 24 points, to 17,791. Also, the S&P 500 index (SPX) was up less than three points at 2,082 while the Nasdaq Composite index (COMP) was down 0.2%, or 9 points, at 5,012.
In forex trading on Tuesday, the U.S. dollar (USD) traded higher in quiet trade. This came as investors shifted their focus to the Greek debt talks. The EUR/USD traded at 1.1240, down 0.46%. On Monday, Angela Merkel, German Chancellor, stated that "there isn’t much time left" for Greece to reach an agreement on a cash-for-reforms deal which is required in order to unlock more financial aid before the country runs out of money. On Tuesday, Athens submitted new proposals to the European Commission while Alexis Tsipras, the Greek Prime Minister, said that a deal could be reached if the creditors in Greece dropped their demands to cut pensions as well as other proposals which would push Greece deeper into recession. Meanwhile, the GBP/USD traded at 1.5296, down 0.35% while the USD/JPY traded at 124.35, down 0.11 percent. Also, the U.S. dollar index was at 95.44, up 0.23%.
Crude oil prices gained in early trade in Asia on Wednesday. This came after data out of the U.S. showed a decline in crude stockpiles last week after the American Petroleum Institute reported that crude supplies declined by 6.7 million barrels. Also, distillate stocks rose by 38,000 barrels while gasoline inventories declined by 3.9 million barrels. WTI crude oil for July delivery traded at $60.54 a barrel, up 0.67%, on the NYMEX. On Tuesday, Brent crude oil for July delivery traded at $64.96 a barrel, up 3.61% or $2.27, on the ICE Futures Exchange in London.