GMRe: GM stock recommendation
After reading Jeff Bennett and Sharon Terlep’s recent article, “U.S. Balks at GM Plan” in the 17 September, 2012 issue of the Wall Street Journal, I would like to make recommendation on when it would be best to allow GM to buy back 200 million shares from Treasury. In order to make this decision, I suggest analyzing from two aspects. One is the political influence. When should Treasury accept the buyback offer, so that can benefit the Obama administration? The other is the return on GM investment. When will GM’s stock price go up to the level that can pay back Treasury’s bailout? For the political influence, an execution that can boost the confidence in current administration should be preferred. Obama administration has maintained that the bailout of auto industry has saved jobs and was a “win-win for business and taxpayer alike.” If the stock is bought back at current price, $24.14, which is much lower than the breakeven price $53, the huge loss would be a big stroke on the government. It is definitely not a good idea to sell the taxpayer’s investment in GM at a loss before election, especially given the criticism of Republican nominee. As the government has already made a profit from investment in banks, a good strategy would be to wait till “emergency fund” make more profit that can offset loss on GM. From the return on the stock perspective, GM’s prospects are “murky”. The company has been losing money in Europe. The slowly recovering U.S. auto industry is another concern. Moreover, there is “ouster of some key executives” in the company, creating uncertainty. On the other hand, the company is in “solid financial shape” and has generating profit for 10 straight quarters. GM also rolled out plan to “eliminate risk” and freshen lineup. So GM will not expect huge revenue in the near future, but will not bear too much downside risk as well. The company’s stock price would be smooth and the bailout would probably turn out to lose...
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