Park Your Money With GM - Barron's

Barron's says GM bets will pay off -- for those with the patience to endure 12-18 months of misery.

GM (GM) shorts are ignoring GM's turnaround, which Barron's says will accelerate over the next 2-3 years. It's recent pact with the UAW makes it likely GM will hit its goal of cutting costs to 23% of revenue by 2012 (30% now from down from 34% in 2005). Last week, GM said 19,000 employees agreed to buyout and retirement offers that will result in lasting cost reductions. Analysts say cost savings are worth $2.50-3/share ongoing.

Sales in China, Russia and Latin America are rising -- GM posted a $1B international profit in Q1 (vs. a $611M domestic loss). It's cars are back in vogue too, winning accolades and a bunch of media and industry awards over the last year for its Malibu and Cadillac CTS. Volt, slated for 2010, is GM's answer to Toyota's (TM) hybrids; it can travel 40 miles on a charge without any gas. "No other car company is running down the green highway as fast as GM," a money manager says. GM is also shifting toward smaller fuel-efficient cars.

Potential negatives include its exposure to troubled lender ResCap and parts supplier Delphi (DPHIQ.PK), which is trying to exit bankruptcy. Analysts have a hard time figuring out how much cash GM has, but it is likely to finish the year with at least $20B, which should suffice to get it over the hump.

With a market cap of under $10B, GM's 1/16th the size of Toyota. Analysts think shares ($17) could rise to at least $30 and maybe $45 by 2010 - or sooner - as cost reductions begin appearing on GM's bottom line. It's "a compelling story that's nowhere near reflected in the price," Stephen Simmons, director of research for Flippin, Bruce & Porter says.

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Steve Patterson couldn't disagree more. He suggests using GM as a proxy to capture longer-term market downside.

Michael Shedlock is (ahem) unimpressed with GM's handling of ResCap. "GM is the walking dead, a true Zombie corporation." He's surprised it's still in business.

Cramer think's GM has bottomed. He likes the preferred shares: "Cost are going down… GM is a buy here. There's a GM preferred … that trades at $20 bucks. That's a really good piece of paper."

Comments

[samadams:]

What's good for GM is good for America. I hope they can turn it around but I doubt it. They have to undo decades of mismanagement and union concessions. When you're spending more on healthcare and retiree benefits than steel for cars you're in trouble. GMAC is a whole other story. I'm actually astounded they are still in business.

2008 Jun 01 04:58 PM

[Reinko:]

A detail that has slipped the wonderful mindset of Eli Hoffmann is the fact that there are over one trillion of derivative postions on all kinds of things outstanding on GM.

Since most of the stuff is the OTC kind of stuff (over the counter) there is no proper administration on those derivates and we do not know if the calls outweigh the puts.

The market cap of GM is below 10 billion or less than one percent of the outstanding derivates. Therefore it is estimated that GM will not fall 'too deep' because the derivative holders can prop the stock price up to protect their investments...

I have no rigid proof that there is over one trillion of derivatives but the numbers as reported by the Basel Bank of International Settlements have to come from somewhere and GM is likely one of those sources on derivative positions.

2008 Jun 01 05:38 PM

[zenalgorithm:]

I think more and more that Barron's editors are paid pumpers. Some of their pumps and their timings for them are simply ridiculous. Barron's pumps used to move the markets years ago, but lately they've been so off, I believe their analysis is either just very poor or bribed.

2008 Jun 01 06:27 PM

[buyitcheap:]

I agree zen, stick with SA and investors.com

2008 Jun 01 09:36 PM

[fxtrader07:]

GM is technically almost bankrupt and that talk of "turnaround" is plain silly. GM is burning through cash, market position in its major market (the US) is deteriorating and the weak dollar will not be able to save it.
No coincidence, for sure that barron's posts a bullish article and Jim Cramer agrees. You can bet his hedgefund friends ackman, einhorn, tilson, rocker etc. are all waiting to get in on the short side on the back of the retail lemmings buying. "park their money with GM" alone that title is hillarious!You don't park your money with gm - it will trickle down into the ground and will never be seen again.
GM has been one of the worst "blue chip" (it ain't "blue chip anymore, actually) investments of the pasr years and it won't become a better one going forward

2008 Jun 02 05:21 AM

[MSmailbox:]

I was working for GM in the 1980's and I thought, basically the same thing as many here, how can it stay in business? Well, it appears that GM can loose over a billion dollars per quarter, for five consecutive quarters, as it did in the late eighties and still survive and thrive (later), when this CYCLICAL industry becomes resonant, again... It (GM) will either die, or lumber into the next cycle of sales and be profitable... I see no middle ground.

2008 Jun 02 08:17 AM

[Rat in a Cage:]

During a recent layoff at our plant did GM layoff any supervisors that had far fewer employees to watch after? No! Do they keep the CEO that continually loses money and market share? Yes. And as far as a greener company. Don't make me laugh. They throw perfectly good storage cabinets in the landfill because they are blue not gray and work benches with 60 pound vices still attached. There is more perfectly good stuff going to the scrap pile in the name of workplace organization when they could be concentrating more on quality and product.

2008 Jun 02 10:58 AM

[svkoho:]

GM has been so clueless and so poorly run for so long that it's hard for me to imagine it will be around for much longer.

2008 Jun 02 11:05 AM

[Reinko:]

To HinesBrad:

The Enron workers also heavily invested in Enron, did it bring them any good? Beside their job lost they also lost their pension...

Well GM is not Enron but GM just like GE heavily went into the financial industry because 'those profits are much higher'.

2008 Jun 02 05:20 PM

[RodBoyes:]

It's tough and has many dimensions, e.g., Toyota hs 2,000 dealers and GM has 8,000 for a similar number of sales. In Chicago, Toyota has 28 dealerships, Chevrolet has 80. How many GM staff are required to manage all those franchises, including service, parts, training, local advertising, etc., etc. And how do you reduce the number of franchise agreements at reasonable costs. I'd sure like to see overhead numbers (staff) comparisons with Toycarcompany.

2008 Jun 03 08:03 AM

[dump:]

There must be some bright news on the horizon somewhere. I am a GMAC 32 year retiree. If GM goes bellyup, where does that leave folks like me?

2008 Jun 03 08:14 AM

[buyitcheap:]

fxtrader's call is awesome on this one - as of today Cramer has done a reversal and said GM should declare bankruptcy. Park your money in a mattress.

2008 Jun 30 02:13 PM