Photo: David Antis
The hot call of the morning: Morgan Stanley has upgraded the auto sector to attractive, while naming GM its top pick (replacing Ford).The firm’s Adam Jonas identifies 4 key reasons for turning bullish:
- US SAAR expectations have fallen sharply due to unprecedented supply disruptions. The validity of these reduced numbers — which have weighed on auto stocks — is in doubt.
- Fears of a Japanese price war are overdone. Sure, Japanese incentives will rise, but conversely, the Japanese products are behind on freshness and product attractiveness.
- Gas prices are in the sweet spot that balances the desire to replace an old gas-guzzling jalopy without being too high to discourage new buying.
- Generally, sentiment is just too low. Ford and GM are the two worst auto stocks in the world this year.
Meanwhile, as noted above, GM is the company’s new top pick.
The one sentence version: “We believe GM offers a powerful combination of positive near-term earnings revisions and negative investor sentiment held up by open-ended questions surrounding the US Treasury hangover, UAW negotiations and the deployment of GM’s fortress balance sheet.”