Automaker Stocks: Out Of The Woods Yet?


Is it simply the bounce after being oversold or have auto stocks bottomed? That's the question after the last 3 days where shares of GM, Ford, and auto suppliers have staged a dramatic rally.

Among the most incredible has been General Motors, up an astounding 42 % since closing under $8 a share Monday. Think about that, 42 %!!!!!!!

Yesterday, as the stock surged 12 %, I was asked by my producer, "How much of this do you think is because of oil plunging?". As I told her, it's a nice confluence of events that have given GM investors a bounce.

First, as oil has dropped like a rock, a lot of money has shifted, at least temporarily from commodities to stocks. Money that had to go someplace, and GM shares were a perfect buy. This stock, in my opinion, was way oversold when it dropped under $9 a share. It had fallen more than 40 % in the last month. And most of that was because some on Wall Street threw out the possibility of bankruptcy.

So investors have taken a fresh look at GM, Ford, and other stocks. But does any of this mean these guys are out of the woods? Nope.

The second quarter earnings will be horrible when they come out over the next few weeks. And the rest of this year won't be much better. Also, until auto sales stabilize, it's hard to see these guys being done with production cuts and the rapid shift from trucks to cars.

So if you're an investor, breathe a sigh of relief, but, in my opinion, don't expect this rally to go much further.

Questions? Comments?