Merrill Lynch raised its rating on General Motors to buy from sell, favoring shares of the largest U.S. automaker over Ford Motor , which were downgraded to sell from neutral.
The ratings changes sent shares shares of GM to their highest level since August, while Ford shares fell.
"We view GM's equity as more attractive than Ford's as the benefit of any concessions on retiree healthcare would be much greater for GM," said Merrill Lynch auto industry analyst John Murphy in a research note. "Furthermore, GM is at a much better point in its product cycle and has a much richer surplus in its U.S. pension, both of which should lend near-term support for the stock."
Murphy expects GM could use its liquidity and legacy assets, specifically its pension, to make some positive changes and reduce its structural cost base. According to Murphy, GM's pension is over-funded by $17 billion.
Murphy set a 12-month price target of $50 for GM shares.
Meanwhile, Murphy cut Ford to sell from neutral, saying the stock could be over-valued at its current level. Ford shares have risen nearly 30% since mid-December.
GM Revs Up Sales Incentives
Separately Tuesday, GM announced sales incentives on certain models sold in most of the U.S. through Feb. 20.
Zero percent financing for 36 or 60 months is available, as is $500 bonus cash, GM said.
Qualifying models include some 2006-07 Buick, Chevrolet, GMC, Pontiac and Saturn cars, trucks and sport utility vehicles. Cadillac, Hummer and Saab vehicles are excluded.
GM said earlier its year-to-year U.S. sales for January dropped 16.6 percent, including 22.5 percent for cars and 11.5 percent for light trucks. GM officials said at the time that the company spent less than its competitors on incentives during the first month of the year.
It sold 244,614 light vehicles during the month, keeping it No. 1 in sales among all auto manufacturers.