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October 17, 2005
More reader mail on GM, Mon., Oct. 17, 2005, 5:49 PM
There was some negative response from one reader after I published another reader's comment on GM. I then took exception to the exception, who later wrote to say he felt like I threw him under the bus, but he still wants to read this blog. I tend to react that way sometimes, especially when I get tired, so I made a point of apologizing.
Tonight, I received more mail from the one who started this episode. He is a money manager.
Bill, I suppose in the world of corporate finance where numbers can be played with to make a case, GM won the last round. A 2 or 3 billion dollar loss for the quarter can be chump change to the boys on the 14th floor if they can, by conjuring up this number, extract over $15 Billion in pension and other concessions from their workers. No wonder the street gave the stock a spike to the upside. I still like my 40 before 25" number and still recommend accumulation under 30. If they unload a large part of their finance arm as suspected, they will be up to their armpits in cash./T"
I too was surprised that America was buying GM as much as they did early today after getting so much bad operating news to balance the good (i.e., employee healthcare resolution). But then, in the earlier articles I did point out that GM (i) is in the Accumulation Zone, and (ii) has millions of cheerleaders.
As to the point made above, if GM were to sell the GMAC unit for, say, $35 billion, and they already have about $200 billion in liquid assets, including about $30 billion cash in the treasury, that would put GM sitting pretty.
At least you'd think so until you see that GM also has long-term debt of about $220 billion as well as an unfunded pension obligation of about $69 billion, according to figures published by Value Line (dated Sept. 2, 2005).
GM didn't get into these problems over one or two years, so they won't extricate themselves quickly either. Still, with the UAW issues resolved for now, apparently, GM could possibly be a good trading vehicle again.
As for me, I'd want to see a Financial Strength upgrade by one of S&P, Moody's or Fitch before I ventured into these shares on the long side. And I would never chase a stock after a gap open like this morning where RSI jumps immediately up above 70.
Posted by Posted by Bill Cara on October 17, 2005 05:49:25 PM | Category: 25 Cons Discretionary , U.S. Equities