On Tuesday, Morgan Stanley resumed its research coverage of General Motors with a SELL rating and $28 price target. Fortunately for GM, the Morgan Stanley analyst in question has little to no credibility, especially when it comes to his ‘short’ ideas. He has held a SELL rating on both Harman International and Avis Budget Group since March of 2013. Since then, shares of Harman and Avis are up 210% and 150%, respectively. In fact, historical correlation suggests his negative stance could be interpreted as a positive for the long-term trajectory of the stock. If you took his advice and bought GM when he originally told you to sell it last March, you would have pocketed a cool 30% gain. This Morgan Stanley analyst criticized GM’s recent decision to return excess free cash flow to shareholders, yet given the company’s $25 billion cash load it would be value-destructive for GM to not put at least some of its overflowing cash reserves to use. Jack Mohr, director of research for Action Alerts PLUS, says he is excited by the company’s aggressive capital allocation strategy and believes it is structured in a way that preserves its financial health. GM’s free cash flow generation is unparalleled, and with the recall issues largely behind them he believes the company is in a prime position to start rewarding shareholders for their patience. GM is a core holding in Jim Cramer’s Action Alerts PLUS charitable portfolio.
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