These days for General Motors, there are only two types of news: bad and worse.
The auto giant and the U.S. Department of Transportation has entered into a consent decree that will include a $35 million fine as the government continues its investigation into GM's handling of recent recalls. It has already taken $1.5 billion in charges on the recalls.
On top of that, it is now recalling another 2.7 million cars, the latest of 24 done so far this year. Since 2014 began, GM has had to recall an astounding 12.8 million cars worldwide to deal with a host of problems that resulted in a dozen deaths over the years.
Now, some of the world's largest hedge fund investors are bailing on General Motors. As regulatory filings are released, it's looking a like a parade of who's who in the hedge fund world is marching out of the stock.
Warren Buffett's Berkshire Hathaway has reduced its stake in the company 25 percent, to 30 million shares. Other hedge funds sold off most, if not all, of their entire GM holding including George Soros' Soros Fund Management, Leon Cooperman's Omega Advisors and Barry Rosenstein's Jana Partners.
Kevin Caron, portfolio manager with Washington Crossing Advisors, notes that Buffett still holds most of his original GM position. Buffett "is still long 75 percent of his position so he can't dislike it that badly," Caron said. "The company has come under pressure recently because of the product recalls, but I don’t think that's really a long-term brand issue, something that Warren Buffett's very big on."
The bigger issue for Caron is the overall auto industry. Total light vehicle sales have been 5.1 million year-to-date, 3.1 percent higher than the same period last year, according to data from MotorIntelligence.com.
"We've gotten back to 16 or 17 million units annualized for the industry," Caron said. "It's hard to imagine that growth rate ramping up."
"Even though we've gone through a restructuring and the company is fundamentally different post-restructuring, there's still a lot of risk tied to the nature of the industry," Caron added. GM's current share price is "fair when you consider all of those and the slowdown that we've seen in some of the economic data recently."
Mark Newton, chief technical analyst at Greywolf Execution Partners, says General Motors' charts show the stock will likely stay around its current prices for now.
"The worst is already baked into the stock," Newton said. "GM has fallen about 17 percent already year-to-date. I think it's tough to consider selling here. The stock has given up already about a third to one half of the entire rally from 2012. So, at current levels, when you look at the short-term picture, you have increasing signs of stabilization."
Newton's short-term GM chart shows a reverse head and shoulders pattern that began in March with a neckline at around $35.70 per share.
"In plain English, that means if the stock gets over $35.70, then there's a great that we're going to see the high $30s again very quickly," explains Newton. The stock was trading the nearly the $34 level on Friday.
"The worst is already in the stock," Newton added. "You've seen a few signs of bullish positive divergence and recent oversold conditions. My thinking is it's good to own GM here, at least for a decent trading bounce in the next couple of months."
To see the full discussion on General Motors, with Caron on the fundamentals and Newton on the technicals, watch the above video.
[Disclosures: Stifel makes a market in General Motors.]
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