Buy Ford Shares on the Stock Dilution 24 comments
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In a market like this one, it pays to note the subtle differences between ostensibly similar assets.
For example, there are car stocks and then there are car stocks. (Yes, I am writing about cars again, but not for the whole column, honest!)
Right now you can buy shares of General Motors (GM) with a most unusual provenance: They used to belong to GM Vice Chairman Bob Lutz, GM North America President Troy Clarke, GM Vice Chairman Thomas Stephens, and Group Vice Presidents Gary Cowger, Carl-Peter Forster and Ralph Szygenda.
You Can’t Fix Stupid
Now I know we are supposed to think of stock shares as perfectly fungible. And it’s quite impossible to know for a fact that the shares you might be buying today actually came from some GM exec’s personal hoard.
Still, there is a touch of something – I’m not quite sure what: irony? fraud? despicable contempt? – to the idea that Bob Lutz is being allowed to sell off his last $131,000 in GM shares on the open market. Surely he has some sort of inside scoop as to when GM will declare bankruptcy?
On the other hand, one must also wonder as to who on Earth would be so stupid as to buy Bob’s shares, which have actually lost another 38% since he sold them.
But You Can Buy Smart!
And then there are Ford (F) shares. In a few days, you will be able to buy 300 million shiny new shares. This has the market in a bit of a tizzy. The very idea of an American car company deliberately diluting shares in these hard times is – well – delightful, really.
Ford’s health benefit responsibilities are under-funded to the tune of a couple of billion dollars. This doesn’t exactly show up as debt on the books. If the guys at Ford’s C-suite wanted to, they could just as easily sweep the whole issue under the rug. (Heck, GM did exactly that for decades!)
But they’d rather face up to it now and get it out of the way. Did they whine? Did they simper? Did they go to the government for a cheap loan? No!
Do the Right Thing
They are doing what American blue chips are supposed to do: They are raising capital on the open market, and using that capital to dramatically strengthen their company.
They can do this because unlike GM shares, which are hovering somewhere around a dollar (61 cents less, by the bye, than Bob Lutz got for his shares), F shares have gone up 547% over the past few months.
Right now F is down a tad on the news of these new shares. This is pure foolishness: First of all, the inherent value of all shares will rise in the end because Ford is using the cash to retire what is, in essence, debt.
And second, Ford’s market cap is somewhere in the vicinity of $14 billion, so it ain’t but so much dilution in the first place. My advice? Ford is on the straight and narrow path, and how many American companies can you say that about these days? Buy more here at $4.75 and smile when it hits $10 this fall.
Vive la Différence!
This ability to detect subtle clues can clue you in to all sorts of wonderful opportunities. For example, the difference between a cup of coffee at Starbucks and a cup of coffee out of the coffee maker at home is a critical clue that many in the commodities biz completely overlooked.
Everyone knows about the collapse of Starbucks (SBUX). It was the canary in the coalmine for the crash of 2008. SBUX completed a double top in November 2006 (well ahead of the rest of the market) and went on to peel away some 82% over the next 24 months.
The guys who study these things figured: “No wants a morning cup anymore, so that’s it for coffee and sugar.” Wrong again! No one wanted a $5 cup of coffee. But a 10-cent cup at home? Heck, I’ll take two, honey, with tablespoons of sugar in each.
A Sweet Ride
In the end, demand has remained high, but supplies of both sugar and coffee are coming up wildly short.
The spot price for generic coffee has climbed to $1.28/lb, making for a 22% rise since December. Still think folks have totally abandoned the good stuff? Colombian beans have hit a two-year high of $2.20.
And sugar is putting them both to shame: White sugar has risen 52% since December to its three-year high at $450 a tonne.
How to Capitalize on the Coffee Guys’ Mistakes
Now I would be the last guy to tell you to buy coffee or sugar futures, because, quite frankly, I am terrified of getting an e-mail asking what to do with the truckload of beans that just showed up.
But these are most enlightened times, and there are ETFs, ETCs and ETNs for most everything these days, including coffee. The name (oddly enough) is the iPath Dow Jones-AIG Coffee Total Return Sub-Index (JO). The fund has been falling pretty much nonstop on the idea that coffee was going to tank. But now that coffee is clearly still the drug of choice, I suspect those fortunes are about to experience a real sea change.
Last price on my ticker is $39.01 a share and quite frankly, the volume is as thin as all get out. But if a body were to enter tenderly over several days, I imagine they could enjoy quite a ride.
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This article has 24 comments:
Lutz is a complete nincompoop, just as the rest of GM top management are complete losers.
You can actually "buy" GM shares for 30 cents, by selling put 2.50 due 2011 at $2.20.
GM management should be prosecuted for destroying a once-great American company with their stupid war against the UAW, and their even stupider stripping the US assets to fund operations in China, Korea, Brazil, Mexico, etc., which, in their hour of need, can't provide ANY return on investment.
Lutz, who refused to buy Nissan, and Wagoner, who handed $2B to Fiat, are now in the contradicted position that both Nissan and Fiat could buy GM for POCKET CHANGE.
Because Lutz and Wagoner killed GM, just as they killed the EV1.
God help you however if you are holding it when it comes off the list.
If you are old enough to remember the past, this has happened about 5 times in the past 50 years and right now we are beginning the 6th.
Ford is the best American car company choice because they are the only American car company that gives you the confidence that your warranty will be honored and you will have some resale value in your rig when you get ready to trade in the future. Who in their right mind wants to buy a car from the Obama Motor Companies (Chrysler and GM)?
I have not covered the foreign car companies because this article is about Ford.
F.S or KSK
As bad as it has been; Ford has made all the payments.
Look at the charts; these things also got crushed, get paid to wait.
Disclosurers: (KSK)
On May 15 07:17 AM lbator wrote:
> Ford will soar in the short run. While Chrysler and GM make their
> way through bankruptcy the government will pass some form of the
> cash for clunkers program. Although I totally disagree with the legislation
> some form of it will pass. When it does millions of Americans will
> have cash vouchers in hand looking for new automobiles. You could
> not dream up a more perfect scenario for Ford. I started buying Frod
> at a 1.28 and continued forward. By summer I see this stock back
> at its 52 week high. Then and only then will I consider taking my
> profits and heading for a more fundamentally sound company
Who is John Galt?
But where will Forg get its labor? In our brave new world, the only workers Ford will be allowed to hire will be part of the union that owns over half of Chrysler and probably 40% of GM? Doesn't anyone else see the conflict of interest in the negotiations that will happen?
On May 15 12:32 PM bbowen7 wrote:
> This will be the "great American story" over the next few years.
> Will the free market capitalism company be able to survive against
> the combined power of the federal government (which will control
> GMAC) and the UAW (which will own its two major domestic competitors)?
> Will they be more nimble in anticipating technological developments,
> and will their response to the market be better than their competitors'
> response to the political winds?
>
> Who is John Galt?
Reason given is that if GM declares bankruptcy like Chrysler, then Ford with debt will have to compete with both still saddled with debt.
home.comcast.net/~bpayne37/goldmansach...
GM will import into the US cars they make in China. The profit made will stay in China and the US taxpayers will have subsidized the entire process. We won't own as much stock as the UAW pension fund. Is this a dream or what?
On May 15 10:43 PM Teutonic Knight wrote:
> From what I could gather from the many good comments above, the prospect
> of GM (or Government Motors Corp., or Phoenix Motors Corp., whatever
> you want to call it) being sold to the Chinese with headquarters
> in China could become an eventual possibility. Not meant as an
> insult to us, but just look at what is happening to Chrysler. Not
> a happen ending in my perspective.
arabianmoney.net/2009/.../
On May 15 04:40 PM Jason722 wrote:
> Unfortunately John Galt doesn't work for Ford. And that is a problem
> as I look out 5 years at the auto industry. I would love to see F
> dominate the domestic market. They could be a good example of American
> manufacturing surviving in a difficult environment without killing
> the taxpayers.
>
> But where will Forg get its labor? In our brave new world, the only
> workers Ford will be allowed to hire will be part of the union that
> owns over half of Chrysler and probably 40% of GM? Doesn't anyone
> else see the conflict of interest in the negotiations that will happen?
>
On May 15 03:24 PM DonFurio wrote:
> I like the overall trends in ford, however I feel like a lot of the
> gains will be at the expense of the common. With csco still down
> 50% from the high for example, and other strong/cheap companies that
> can grow in the future, I'd rather put my money there. I do think
> Alan M. and team have done as good as job as they could so far, and
> best of luck having to compete directly with the socialist backing
> gm and chrysler.. I'm not in the camp that believes you have to
> buy American cars, but if you are, I hope you chose F.
I think Ford makes a better product than Chrysler and GM, and are held in higher regard, but they are still saddled with legacy costs and ridiculous UAW contracts. GM and Chrysler declaring bankruptcy doesn't erase these costs for Ford. It's only a matter of time before it also brings Ford to bankruptcy.
Even when times were good, Ford was struggling. I certainly don't see Americans buying new $40,000 SUVs and trucks like they were with easy credit and cheap gas. Those were the bread and butter for Ford, and those days are long gone.
The stock may still go up a bit in the short term, but I'd be wary of jumping in on a stock that's already gone up over 500% in a few short months. I certainly wouldn't want to hold Ford stock over the long term.
in this case.. it really is a contribution