General Motors (GM, $11.46, down $1.35) is at a 50-year low. Yes, that’s right, GM is at multi-decade lows after Goldman Sachs (GS, $178.97, down $4.68) downgraded the stock to a “conviction sell” saying the company may have to raise capital to shore up its balance sheet.
The stock is down 10% and got as low as $11.21. GM has lost a whopping 75% from its 52-week high of $43.20. Goldman went on to say that the auto market conditions are likely to keep deteriorating and that GM is burning through its cash. If GM needs to raise cash, it would most likley cut the company’s dividend which currently yields 7.6%.
The auto makers are in a world of hurt and I have been mentioning them a lot lately, especially Ford Motor (F, $5.04, down $0.20). The July 6 puts (FSI, $1.08, up $0.24) were trading for $0.47 last Friday when I mentioned if Ford fell below $5 within the next month, these puts will be worth at least $1.00. Bingo.
We had set our stop at $0.70 and you should now raise the stop to $0.90. Ford could continue lower if “capitulation” sets in. I love using that word. Capitulation is when investors “give up” any previous gains in a stock price or sell it for a loss in an effort to get out of it and into something less risky. True capitulation involves extremely high volume and sharp declines and although that’s not quite the case with Ford, it could be happening in the market right now.
It is said that after capitulation selling, there are great bargains to be had. The belief is that investors who wanted to get out of the market or a stock have sold and prices that, theoretically, will reverse and bounce off their lows. In other words, some market vets believe that true capitulation is the sign of a bottom. We may not be at a capitulation point just yet but there is “blood in the streets”.