New GM stock price target: Maybe $1 -- but probably zero

Another major Wall Street brokerage today told clients that General Motors Corp.’s shares probably are worth nothing.

The stock is down on the news -- but still is trading for significantly more than nothing.

Credit Suisse Group analyst Christopher Ceraso cut his rating on GM to "underperform" from "neutral" and reduced his 12-month price target to a token $1.

The federal government on Friday extended a short-term loan to GM, but said the company would have to quickly show it can cost-cut its way back to health. In particular, the government wants the company to slash its debt load by persuading bondholders to swap bonds for stock.

Ceraso sees that as a recipe for a wipeout of current shareholders.

From Bloomberg News: "Over the next two months, as bondholders, union representatives and company management meet to hammer out concessions, we think it will become increasingly clear that the enormous sacrifice of value on the part of the union and bondholders will require the complete or near-complete elimination of the existing GM equity," Ceraso wrote.

Additionally, the government will claim as much as 20% of GM’s equity value, he said.

Ceraso is just the latest Wall Street analyst to give up on GM. Merrill Lynch’s John Murphy cut his price target for the stock to $1 on Oct. 13, when the shares were still at $6.51. Merrill’s new target, effective today: one penny.

Deutsche Bank told clients to get out on Nov. 10; Goldman Sachs had a "sell" rating on the stock beginning in late June, and suspended coverage altogether on Dec. 8.

GM shares were off 78 cents to $3.71 at about 11 a.m. PST today. That’s well above the recent low of $1.70 reached during trading on Nov. 20.

Why isn’t the stock trading closer to zero? The market may think it knows something that analysts don’t about the real future value of GM.

Or it could just be that many investors who are left in the stock figure they’re holding a lottery ticket now: Either it pays off, or you'll throw it away; no point in selling.

Over the years, I've seen other worthless stocks retain a cash value up to the final minute they're delisted from the market. Strange, but it happens.

-- Tom Petruno

Photo: GM's headquarters in Detroit. Credit: Bill Pugliano / Getty Images

Comments

[Rob]

Unfortunately, this is what it has come to in Corporate America. This Company, as well as, the other two US automakers have been mis-managed for decades. Loss of competitiveness, inferior products, management excessiveness....the list goes on and on. I'm all for breaking this Company up and selling off the pieces. Maybe the sum of the parts will be greater than the whole.

[Robert Laughing]

It was so much cheaper to buy Congress, than it was to build good cars and trucks that people WANTED. LA TIMES: you have any figures on how much money Detroit and UAW PAID to Congress these past 5 years?

[Rev. Dave]

I'm afraid GM is just a symptom of a greater problem; we're bankrupt as a nation - which is painfully beginning to show. Instead of investing in human capital, we squandered our fortunes on mostly worthless things. And now were going to the the price in economic terms for many generations to come. As it has been so aptly said for many decades now, "As GM Goes So Goes the Nation."

[roger ramjet]

Let it die. GM was dead 20 yrs. ago! Short term thinking (make the numbers this quarter!). What is really sad is the jerks that ran the company are fat and happy. The workers are paying the price. This is a go-for-it- "F" you society we live in. It is a legal jerk-off to make money and to hell with everything else.
Happy trails to all you billionaries out there...............

[rick jones]

Frankly, I would just as soon let GM eat CAFE.

[npb]

Ford is the only US carmaker making anything resembling worthy cars today and with the potential to come out of this. The plan should be to help Ford, let GM and Chrysler make official what everyone except congress acknowledges (that they're dead and have ben dead for years), and let's make way for a new crop of entrepreneurs to get into the US car biz. The American people will buy a great American car--it's just that the Big 3 have used their cartel status to not make one. That's over. RIP.