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."
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This article has 12 comments:
- samadams
- 39 Comments
Jun 01 04:58 PM- Reinko
- 329 Comments
Jun 01 05:38 PMSince 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.
- zenalgorithm
- 158 Comments
Jun 01 06:27 PM- buyitcheap
- 422 Comments
Jun 01 09:36 PM- fxtrader07
- 618 Comments
Jun 02 05:21 AMNo 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
- MSmailbox
- 67 Comments
Jun 02 08:17 AM- Rat in a Cage
- 1 Comment
Jun 02 10:58 AM- svkoho
- 95 Comments
My Website
Jun 02 11:05 AM- Reinko
- 329 Comments
Jun 02 05:20 PMThe 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'.
- RodBoyes
- 1 Comment
My Website
Jun 03 08:03 AM- dump
- 1 Comment
Jun 03 08:14 AMThere 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?
- buyitcheap
- 422 Comments
Jun 30 02:13 PM