A Merrill Lynch analyst upgraded General Motors Corp.'s stock two notches to "buy" from "sell," on the increased belief that the automaker will use its cash to turn its business around.
Analyst John Murphy also cut Ford Motor Co. to "sell" from "neutral," based on a "stretched" valuation and the risk that the company won't turn itself around in the next three years.
Murphy said Ford Chief Executive Alan Mulally is "making progress," but the company faces strong challenges, like getting out of a product slump, particularly with the F-series trucks.
On GM, Murphy noted that the company's pension fund is overfunded by $17 billion, that pressure is mounting for change in the company's health care plan, and that the company will be able to borrow more money with its factories as collateral.
"The resulting sentiment is increasingly more optimistic and is trumping our previous expectation of pressure early in 2007," Murphy said in a research note.
Murphy also is establishing a $50 stock price target for GM.
Shares of GM were up 88 cents, or 2.5 percent, to $36.59 in regular trading Tuesday on the New York Stock Exchange after hitting a new 52-week high.
Ford's shares fell 20 cents, or 2.3 percent, to $8.45 on the NYSE.