GM Common Stock Is Worth More than You Think

Let me start by saying that I have no GM (GM) position. I sold the last of my bonds today, but may buy some next week. I like the prospects for the "new GM."

The GM that is expected to file bankrupcy on Monday isn't worthless. First of all, it will get some very small piece of the "new GM."

Secondly, GM has lost about $69 per share in the last 3 years. That loss is very valuable. It may be a record for any American corporation. Someone will want that corporate shell when all the assets are stripped away. That someone will want it for the loss.

On a different scale, assume you could buy a $690,000 tax loss for $7500. Every 75 cents buys $69 of tax loss.

Would you be interested? I know I would.

Microsoft (MSFT) should buy the GM shell. Can you imagine the uproar? The GM tax loss for the last 4 years is almost $32 billion. I did the math based on Microsoft's recent earnings and taxes, and the GM tax loss would save MSFT around $9 billion in taxes. At today's close, GM has a total market value of less than $500 million.

Remember Penn Central? Lots of losses. It is currently owned by an Ohio insurance company, Carl Lindner's hedge fund. He is one of the richest people in the world.

So, maybe all those smart talking heads on TV (like Cramer) who think that only stupid retail investors are buying GM will be surprised at the ultimate outcome.

Comments

[Gerry Sullivan:]

The cost to borrow GM common in order to sell short or remain short is increasing. Anyone who is short GM common is doing so in large size and is paying at least 40%/month to borrow. Most people including 99% of the Seeking Alpha readers cannot sell GM short.

Last Tuesday GM went higher because naked call sellers got called at the May expiration and couldn't borrow stock to stay short. It wouldn't surprise me to see the pro traders put the squeeze on to push the stock higher.

Ironically, as the GM long holdouts see that the company really did file chatper 11, they are selling their stock which may have been borrowed to enable others to be short. Those borrowers will be forced to cover.

With the Dow Jones Industrials up over 200 points and the GM bankruptcy, it is a fun day.

Jun 01 12:55 PM

[joeisright:]

Agree on the fun day. You just can't bring yourself to admit the current common is worthless outside of the arbitrage trading taking place today.

Jun 01 01:06 PM

[jayminho:]

"MICROSOFT SHOULD BUY GM"
PLEASE, TELL ME I DIDNT READ THIS

oh my gosh, this is the level of the guys who posts here.
no.. i am not talking about a 18 years old kid, but some old dude,
no, no, no..
even a 18 teeeeeeeeen, wouldnt say that.

Jun 01 01:27 PM

[rpl:]

Depending on the irrationality of herd traders is not a good way to live.

Jun 01 02:41 PM

[DonFurio:]

Haha, I was about write a few paragraphs blasting the author on how much of an idiot he is and how wrong he is, but everyone beat me to the punch.

On a different note, I do wonder if people will try and buy Ford cars since they avoided gov't funds. I'm not interested in the Ford common stock, but I am interested to see if Ford can continue to gain share.

Jun 01 04:01 PM

[dybydx:]

the author of this article needs to take an intro course on corporate taxes....

as someone pointed out, if this is a sale of assets from old gm to new gm, follow up a dissolution of the old gm, then all tax values of the old corp is lost.

also someone need to be seriously out of their mind to buy the old gm shell, since inheriting that shell means also inheriting any skeletons in the closet. gm is famous for its legacy costs, remember that.

Jun 01 04:56 PM

[JCC:]

Dybydx - you were correct, but the rules have changed:

The rules were modified for companies taking TARP funds. For those companies, they are allowed to keep the Tax Losses. So the losses will go with the new GM.


On Jun 01 04:56 PM dybydx wrote:

> the author of this article needs to take an intro course on corporate
> taxes....
>
> as someone pointed out, if this is a sale of assets from old gm to
> new gm, follow up a dissolution of the old gm, then all tax values
> of the old corp is lost.
>
> also someone need to be seriously out of their mind to buy the old
> gm shell, since inheriting that shell means also inheriting any skeletons
> in the closet. gm is famous for its legacy costs, remember that.

Jun 01 05:14 PM

[GM Bonds:]

Excellent post--Thank you


On May 30 02:02 PM SeattleGoldMiner wrote:

> 1.) GM shares will continue to trade until the company EMERGES from
> Chapter 11.
> In all likelihood they will be delisted by the NYSE sometime shortly
> after they file Chapter 11 and trade on the pink sheets.
> 2.) While in Chapter 11, whether the bondholders buy into the new
> deal or not, GM will continue to operate, almost as normal, while
> it begins to implement the changes that the government and consultants
> have suggested are necessary to perhaps be successful in the future.
>
> 3.) The Chapter 11 will take anywhere from 3 months to 18 months
> to be completely resolved and when it is resolved the company will
> EMERGE and ALL OF THE CURRENT SHARES WILL BE CANCELLED.
> 4.) There will be nothing given in return for the cancelled shares.
>
> 5.) If someone is short the stock there will be no need for them
> to "cover" their short position, only file copies of the reorganization
> plan with their broker and any margin held against the position will
> be released (this is called a terminal short.)
> 6.) There will be tax due for the profits on the short position,
> even if never formally covered by a trade. The profit will be deemed
> to have occurred on the day the company emerges and the shares are
> cancelled.
> 7.) Between now and then the stock will continue to trade and may
> spike up and down for a variety of reasons such as:
> a.) People who have held for a long time figuring, "how much more
> can I lose" and thus NOT selling. The obvious answer is, since the
> stock WILL be cancelled, that they can lose whatever their stock
> is worth when they decide to NOT sell it.
> b.) People who DO cover their short positions and are willing to
> forego the remaining drop to zero, so that they can free up their
> collateral margin, which will create some buying.
> c.) Naive people who do not understand that what is happening to
> the company has no bearing any more on the value of the stock in
> the future. So even if sales fo up 30% while the company is in Chapter
> 11, the stock is still cancelled when they emerge. The reason for
> this is that until and unless the company can make all claims against
> it 100% whole (bondholders, secured creditors, trade creditors, union
> health fund etc.) Bankruptcy law does not allow for anything to common
> shareholders. In rare instances there is either enough in the company
> to leave something over for common shareholders (usually if a company
> files to avoid litigation) or to shorten the process (as they are
> currently trying to do with the bondholders) the shareholders are
> thrown a "bone" so they do not add more legal fees or delay things.
> That "bone"....if the creditors are not made whole, may not be more
> than an "out of the money" warrant to buy stock in the "new" company
> at a price which would make the creditors whole if the stock ever
> reached it and the creditors have taken stock for all or part of
> their claims.
> d.) Hypesters and day traders who attempt to take advantage of a,
> b and c above in order to create a quick profit, or escape from an
> ill-advised position they took before the filing.
> e.) Momentum copycats who say "Gee, the stock is rising, something
> must be happening." The response to that is to not believe your neighbor
> can really fly if you see him jumping off the roof!!

Jun 01 05:41 PM

[DonFurio:]

"For I am Costanza. Lord of the Idiots"

-That's how the author should feel after writing the worst SA article I've ever written, and then not admitting how wrong he is. Maybe he's trying to pump and dump on the pink sheets.



On Jun 01 10:33 AM Gerry Sullivan wrote:

> GM isn't worthless, it's worth 70 cents per share. It has traded
> 87 million shares as of 10:30 AM today. There is a bid, you can sell
> it if you think it is worthless. If I owned GM, I would sell it.
> I have always recommended that.
>
> The GM bonds are all up over 20% today.
>
> I continue to recommend selling the common stock and buying the bonds.

Jun 02 02:55 AM

[Gerry Sullivan:]

100 comments and many different ideas on the tax losses generated by GM. While post bankruptcy ownership of any part or asset of GM is for the court to decide, the consensus of the comments here (to the extent that there is any consensus) is that the tax losses will not benefit the holders of the GM common stock.

So the original premise of my article is WRONG!

I continue to recommend selling GM common stock and buying the bonds.

Jun 02 08:16 AM

[topshelf:]

didn't jpm make a big gain from the tax loss of bs


On May 31 08:45 AM Gerry Sullivan wrote:

> Wow, there are some angry people on Seeking Alpha. If you don't
> like what I write you should at least be civil.
>
> I purposely ran the article after the market closed on Friday and
> stated that I had no position in any GM securities. I traded the
> GRM bonds twice and the BGM bonds twice and all 4 trades were profitable.
> I recommended purchase of those bonds for speculators and if you
> followed my advice you made money.
>
> GM will continue to trade and I expect it will trade lower. I didn't
> suggest that anyone purchase the stock and I still don't suggest
> that anyone buy GM. I was merely pointing out that there might be
> some value that was being overlooked. If you check my previous posts
> you will see that I recommended that holders of GM common sell the
> stock and buy the cheapest bonds. As recently as last Tuesday you
> could sell 100 shares of GM common and buy more than 100 of the BGM
> $25 par bonds. BGM closed at $2.48, GM at 75 cents.
>
> GM bonds will continue to trade and may trade higher. Once GM files
> bankruptcy the symbols may change. Someone mentioned that they were
> short the bonds. That might get untidy as this works its way through
> the court system. I continue to believe that the bonds will be worth
> more than their closing prices on Friday. There could easily be
> a short squeeze on the listed bonds.
>
> I like the prospects for the "new GM" and think in time it will be
> a big winner.
>
> Disclosure: no positions in GM

Jun 02 09:49 AM

[Mad Hedge F...:]

It's worth nothing to me. The fat lady finally sang. General Motors (GM) is gone at last. Don’t look at the share price, which now trades in pennies, down from $90. Look at the labor force, which has shrunk from 360,000 to 39,000 on its way to 18,000. I sat at Ralph Nader’s knee (because there were no chairs) 40 years ago, who wore his unfashionable trademark white shirt and pencil thin tie. He was fresh from the runaway success of his book Unsafe at Any Speed, which castigated GM for its Corvair, which had the unfortunate tendency to explode when hit from behind. Even then he was predicting the demise of GM. Companies that recklessly kill off their customers and produce inferior products at high prices can’t last, he said. Fuel efficiency and the environment came later. Many people considered him a communist then, for bashing GM was considered unpatriotic by most and treasonable by some. No doubt J. Edgar Hoover’s FBI was following his every move. I think that Obama should now make Nader a director of GM, along with that other GM hater, Michael Moore.

Jun 02 04:30 PM

[User 35247:]

I have a question about GM options. Last week in anticipation of the bankruptcy. I wrote some GM Dec 1 calls (I hedged by buying some GM $3 Dec alls since the possibility existed for the Gov do some crazy thing).

Assuming GM gets out bankruptcy by Dec, will the calls be canceled?

Jun 02 06:38 PM

[getontoit99:]

I want to write stories for sekingalpha.com as anyone can anonymously write any kind of rubbish and expect to be believed.
Well done those who have commented so far. The "oxygen thief" who wrote this capola should retire his pen and PC, and go learn about how things really work.

Jun 02 10:53 PM

[User 424950:]

how about GM ?- (G)overment Motors




On May 30 04:58 AM PeteK wrote:

> Can't wait to buy the new GM shares.
> Should be a good day for America when
> GM starts anew. Wonder if a new name will be used.

Jun 03 11:18 AM

[joeisright:]

He admitted he was WRONG. It took awhile but nonetheless.

Jun 03 11:22 AM

[Sovestor:]

GM used to be driver of US economy. No more. US needs not to worry on the demise of GM. Innovation and entrepreneurship will find new ways, new sectors, new technologies to empower US economy in the next decades.

Jun 03 06:18 PM

[FE812:]

Good Comment -

At the end of the day, this was the plan.

The new GM, with the full backing of the US taxpayer, can sell the kind of cars that Americans don't want but Euro-loving politicians want us to have for a steep discount. If they make them cheap enough people will buy them even if they would rather not. (Side Note: I've been to Europe, it's beautiful - I don't wanna live there)

Want my honest opinion? (sorry you don't have a choice :-) ) ...

The auto industry is just a pawn in the bigger match against the current American energy industry.


On May 30 02:58 PM TBill wrote:

> I see GM management is already adjusting to its new masters. It has
> agreed to produce the Obamamobile even tho there is no market for
> it. And to please its other master, it has agreed to make it here
> in the US, now that profit is no longer the motive.
>
> No one will buy the car, so they will have to give them away. Maybe
> they can sell them at half of cost. That will get their fleet average
> MPG up so they can build a few 20 MPG SUV's they can sell at a huge
> premium, making up for the loss.
>
> Who will lend to the new GM now? No one in their right minds, now
> that we have seen contract law go out the window. But the point is
> moot as the US/taxpayers will provided all the $$ needed to cover
> the losses.
>
> Welcome to the new world of business.

Jun 04 08:51 AM

[Tomcat101:]

At 75 cents the stock is still overpriced even if they weren't in bankruptcy.

People do not want vehicles that are poor quality and put together in a half-assed manner with things falling off and leaving you stranded somewhere when they won't start.

You cannot polish a turd.

They will continue to struggle unless Obama forces us to buy them. I won't rule that out.

Jun 04 09:07 AM

[rsinj:]

GM is worthless and you should re-read the title of your article before you spew nonsense like "If I owned GM, I would sell it. I have always recommended that". GM even said the common stock was worthless when it entered bankruptcy, but brainless wonders like yourself continued buying, pumping, and writing nonsense like "GM Common Stock Is Worth More than You Think". Did you not write that? Sure looks like it.


On Jun 01 10:33 AM Gerry Sullivan wrote:

> GM isn't worthless, it's worth 70 cents per share. It has traded
> 87 million shares as of 10:30 AM today. There is a bid, you can sell
> it if you think it is worthless. If I owned GM, I would sell it.
> I have always recommended that.
>
> The GM bonds are all up over 20% today.
>
> I continue to recommend selling the common stock and buying the bonds.

Jul 30 01:44 AM