DETROIT — General Motors stock gyrated between positive and negative territory Monday to close at a loss as it started its first full week of trading as a reborn company.
Analysts said the reason is a combination of hedge funds taking profits and other investors jumping in as the price dips, and they expect volatility to last for several more days.
GM stock closed Monday at $34.08, down 18 cents a share, or 0.5 percent. It dropped as much as 45 cents to $33.81 in the morning but rebounded to a gain and continued to move above and below break-even all day. At one point, it hit 22 cents above Friday’s close of $34.26. Volume was about 36 million shares, far below the more than 400 million trades in GM stock Thursday.
The stock movement comes two business days after GM pulled off an initial public offering worth $15.8 billion, signaling the resurrection of an American corporate icon that collapsed into bankruptcy protection and was rescued with a $50 billion bailout from U.S. taxpayers.
Volatility is likely to continue for at least a few more days because stock markets have been unstable of late and as hedge funds continue to take profits and other traders search for bargains, said Joe Phillippi, a former Wall Street analyst who is now president of AutoTrends Consulting in Short Hills, N.J. He also said investors could be buying with the expectation of a pop in the price because GM should make its way back into the Standard & Poor’s 500 index shortly. Membership in the index is important because many mutual funds buy shares based on it.
“The hedge funds are obviously big players. They’re flipping. They used their muscle to get big, strong allocations” in the IPO, Phillippi said. “You may very well have a lot of portfolio managers buying the stock when it dips, figuring that it’s going to be put back into the S&P 500 soon.”
On Monday, Standard & Poor’s began covering the new GM stock by recommending that investors hold it. Analyst Efraim Levy set a 12-month price target of $36 and wrote that he expects earnings per share of $2.78 in 2010 and $3.62 in 2011. GM earned $2.62 per share through the first three quarters of this year.
He based his recommendation on GM’s lower operating and borrowing costs after leaving bankruptcy protection, and a greater focus on its remaining four brands. GM got rid of Hummer, Saab, Pontiac and Saturn and now can focus on Chevrolet, Buick, GMC and Cadillac. Levy predicts U.S. industry sales next year of 13 million, up from 11.5 million expected this year.
