A number of readers have written in to ask about General Motors, with the idea of buying the shares as either a contrarian investment, or to take advantage of the current 9 percent dividend yield. I would advise extreme caution before making such a move.

To be more specific, you have to wonder what tea leaves GM (Ticker: GM) is reading. For example, at the recent North American International Auto Show in Detroit, GM displayed the concept for a new Chevrolet Camaro muscle car. The company has spent seven months developing the 400-horsepower vehicle in an effort to challenge Ford's Mustang.

With the country's attention riveted on oil and gasoline prices, fuel efficient hybrids are in heavy demand. Furthermore, my research indicates that you can look forward to $70 per barrel for crude, with the associated increase in gasoline prices, by midyear. Meanwhile, GM is spending precious research dollars on 400-horsepower muscle cars.

Dividends are designed to return a portion of a company's profits back to its shareholders. Companies that are hemorrhaging red ink should not be paying dividends; and GM lost nearly $5 billion on its core North American automotive operations in the first three quarters of 2005.

If GM cut its dividend by 50 percent it would add approximately $566 million a year to the bottom line. Most companies, if they were losing money in proportion to what GM is losing, likely would not be in business, much less paying a large dividend.

So why is GM paying such a high dividend? The company is worried that a dividend cut would put tremendous selling pressure on the stock, driving its price even lower. Yet, a lower price today might help ensure a higher price tomorrow.

Jerry York, a top aide to billionaire investor Kirk Kerkorian, the third largest shareholder in General Motors, suggested a 50 percent dividend cut along with selling off the Saab and Hummer divisions, thereby enabling GM to concentrate its efforts on the remaining divisions. He also suggested across-the-board salary reductions, with top managers bearing the brunt of those reductions.

GM's management has pretty much rejected all of those suggestions, although I believe they will have to cut the dividend.

On a different topic, Wall Street has been bailing out of a stock that, while expensive from a price-to-earnings perspective, still shows some excellent promise. Genentech (DNA) recently announced annual 2005 GAAP earnings of $1.18 per share, a 62 percent increase over earnings of 73 cents per share in 2004.

Operating revenues came in at $6,633.4 million, a 44 percent increase over the $4,621.2 million posted in 2004. Total product sales were $5,488.1 million, a 46 percent increase over product sales of $3,748.9 million in 2004.

U.S. sales of Avastin in 2005 increased 108 percent to $1,132.9 million from $544.6 million in 2004. Fourth-quarter Avastin sales increased 89 percent to $359.1 million from $190.5 million in the fourth quarter of 2004.

But Wall Street's focus was on Avastin's fourth-quarter sales, which were about $10 to $20 million short of Street expectations. That amounts to an error rate too small to calculate.

Furthermore, Genentech anticipates filing multiple supplemental Biologics License Applications with the Food and Drug Administration in 2006. In addition, Genentech announced that it expects FDA action on two Rituxan filings in February.

While the medical jargon revolving around Genentech may resemble ancient Greek, the resulting numbers do not. For its 2006 fiscal year, I am forecasting GAAP earnings of $1.71 per share, or an earnings growth rate of 45 percent. But will it be enough to maintain Genentech's lofty P/E ratio of 75?

Even if the P/E ratio should fall to 55, a drop of 27 percent, you still would have a $94 stock for a 6 percent price gain, assuming my earnings estimate is correct. However, with a 45 percent earnings growth rate, a drop of that magnitude is, in my opinion, unlikely. However, you would want to wait until the Street gets over its selling frenzy before considering an investment.