GM Might Live on, Doesn't Mean Stock Will Go Up

I heard something on the radio this morning that took my bullish leanings (not actions) and twisted them all about. On the local rock station, one that is the current home of Opie and Anthony and the former home of Howard Stern, they actually discussed how GM had to be a good deal if you could wait a few years. "I cannot see General Motors going away," they said (paraphrased). "I cannot see the economy without this car maker."

Does it scare anyone about the state of the stock market when disc jockeys - and shock jocks at that - are talking about buying beaten down stocks? The contrarian bull in me just died.

Still, I do agree. General Motors will be around in my view. But there is one great big thing to remember. Just because the company will live on does not mean your shares of stock will go up. What happens when they go bankrupt and get picked over by some hedge fund? Your shares go belly up.

What if there is a simple takeover by somebody with deep pockets? What will you make? A dollar on each 2.50 you put up? That's a huge percentage but it is meaningless when you are buying a regular retail size.

And what if your "premium" over market price comes in the form of debt assumption? Then your profit will be bupkis (look it up).

Or a share exchange - 10 GMs for every share of White Knight Inc? Then you will own shares in a company that was not quite so "cheap" as GM and there goes your "deal of a lifetime" theory.

Yeah, GM will live but that does not make it a great investment. It might be great - really great - but don't bet the ranch.

Comments

[casey00001:]

Michael: Whether you invest in GM or Treasury Bills its the same thing.
Casey

Feb 13 08:16 AM

[babyray:]

I am in!! The people who will make the big bucks are the ones who have the most guts. I believe in the American blue collar worker. I believe in GM.

Feb 13 10:16 AM

[slowdown:]

One more reason to not allow GM to go into bankruptcy - it's the hedgies and banks that got us into this economic holocaust to begin with.

Feb 13 10:20 AM

[303820:]

The reason GM stock won't go up is because we have half brain educated Toyota republicans like Mr. Kahn that goes around with a sign around his neck that says "GM GOING BANKRUPT"!!!!!!!!!

Feb 13 04:07 PM

[the_watcher:]

Why not just invest in GM debt instead of equity..

Feb 13 10:32 PM

[PeteK:]

slowdown,
You can't blame the banks for GM's failure.
It was the allmighty UAW, remember ?
They Striked and squzzed the Boss to death.
They killed the Goose that lays golden eggs.
They created their own demise. Period !!

Feb 14 02:40 AM

[babyray:]

It was not the UAW!! Labor is only 10 percent of the cost of a vehicle!! It is unfair trade agreements, Government imposed Cafe Standards!! Competing against companies who have most of their operations in countries that supply health care to their workers and can build assembly plants in the Republican controlled south that give them ten years tax free !!!

Feb 14 12:31 PM

[2222:]

This article is a joke. I say if GM survives they are doing all the right things to be profitable at a man egeable market share. If the market comes back GM could be in good shape. Bottom line if we want to get our loan money back we should buy American, Buy GM. Their new products are all hits, CTS, Enclave, Acadia, Silverado, Malibu, Hybrids, etc. GO GM.

Feb 14 11:06 PM

[robertc39:]

I don't know know why all this talk ablout how great it would be if GM went bankrupt. What about all the small investors and bond holders. How much do the the pension funds have invested? The question should be 'how do we save the company not how do we sink it'. If their paycheck was tied to GM I am sure that they would think differently.

Feb 15 08:55 AM