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New GM stock price target: Maybe $1 -- but probably zero

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Another major Wall Street brokerage today told clients that General Motors Corp.’s shares probably are worth nothing.

The stock is down on the news -- but still is trading for significantly more than nothing.

Credit Suisse Group analyst Christopher Ceraso cut his rating on GM to ‘underperform’ from ‘neutral’ and reduced his 12-month price target to a token $1.

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The federal government on Friday extended a short-term loan to GM, but said the company would have to quickly show it can cost-cut its way back to health. In particular, the government wants the company to slash its debt load by persuading bondholders to swap bonds for stock.

Ceraso sees that as a recipe for a wipeout of current shareholders.

From Bloomberg News: ‘Over the next two months, as bondholders, union representatives and company management meet to hammer out concessions, we think it will become increasingly clear that the enormous sacrifice of value on the part of the union and bondholders will require the complete or near-complete elimination of the existing GM equity,’ Ceraso wrote.

Additionally, the government will claim as much as 20% of GM’s equity value, he said.

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Ceraso is just the latest Wall Street analyst to give up on GM. Merrill Lynch’s John Murphy cut his price target for the stock to $1 on Oct. 13, when the shares were still at $6.51. Merrill’s new target, effective today: one penny.

Deutsche Bank told clients to get out on Nov. 10; Goldman Sachs had a ‘sell’ rating on the stock beginning in late June, and suspended coverage altogether on Dec. 8.

GM shares were off 78 cents to $3.71 at about 11 a.m. PST today. That’s well above the recent low of $1.70 reached during trading on Nov. 20.

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Why isn’t the stock trading closer to zero? The market may think it knows something that analysts don’t about the real future value of GM.

Or it could just be that many investors who are left in the stock figure they’re holding a lottery ticket now: Either it pays off, or you’ll throw it away; no point in selling.

Over the years, I’ve seen other worthless stocks retain a cash value up to the final minute they’re delisted from the market. Strange, but it happens.

-- Tom Petruno

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