GM stock upgraded
Merrill Lynch lifts opinion after recent strong sales, earnings guidance from No. 1 automaker.
March 7, 2002: 9:13 a.m. ET
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NEW YORK (CNN/Money) - Merrill Lynch & Co. upgraded its recommendation on General Motors Corp. to a "buy" from a "neutral" rating, making it the latest firm to respond to strong sales results at the world's largest automaker.
John Casesa, the Merrill Lynch auto analyst, wrote that an improved product mix by GM in its North American sales is driving increased profits, and that the stock is trading at low earnings multiples.
"We expect this mix improvement to overwhelm difficult market conditions for the foreseeable future, and therefore, we now expect solid earnings growth in 2002," Casesa wrote.
Still Casesa, who has been somewhat bearish on the auto sector for more than a year, said that there are still risks for GM stock, including a cyclical downturn in auto demand and questions he has about GM's balance sheet.
"GM has many calls on its cash, including pensions, retiree health care and Fiat's put option," wrote Casesa, referring to GM's move to take a stake in European automaker Fiat.
Last week General Motors executives raised their earnings outlook for the year and said the company had set a $10 earnings-per-share target for 2005. It also reported an unexpected gain in U.S. February sales, as its Chevrolet brand topped the Ford brand in sales for the first time since 1991.
A number of analysts have responded by raising their opinion on the stock, including J.P. Morgan, which went to a "buy" from a "market perform" rating on Monday.
Shares of GM, a component of the Dow Jones industrial average, gained $1.08 to $61 in pre-market trading on Instinet Thursday, after a gain of $1.31 in trading Wednesday. That put shares up about 15 percent since the company's new earnings last week. 
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