Stock value is way down. Would this be a good time to take a gamble on GM stock?
It would be a hell of a gamble. Don’t invest more than you could afford to lose - bankruptcy is a real possibility for GM.
I agree. It is cheap because it truly doesn’t appear to be worth much. If you know something the many experts, workers, and consumers don’t, please share to help cheer people up and bring the stock and company back.
GM has some monumental problems that they seem incapable of fixing. They aren’t short-term things either.
If you are just looking for a gamble, you can short the stock as well and profit when it falls to 0 in five years.
Actually I think it might be a better time to buy Ford Stock.
Last time I looked GM was at $19. or so and Ford was at $7.77.
Ford has been deep do do for several years, and has been working hard to trim waste and turn the company around. They have a plan and seem to know where they want to go and how they plan to get there.
GM on the other hand doesn’t seem to have a clue from what I have read.
IMHO the chance of Ford going to $15.50 is a lot higher than the chance of GM getting to $38. Either way you would double your money, which do you think in more likely?
“Past performance does not indicate future results.”
Translation – there are a lot more companies that have not successfully reinvented themselves than there are that have.
Wait until after they go bankrupt.
Could somebody please explain this? (I’m a total novice on financial matters and am curious how you can profit when a stock falls to zero.)
I am sure there are more lengthy explanations online however here is the very brief explanation of stock-shorting.
You own 1 share of DevilCompany at $10.
There is a financial company out there that will be willing to set up a switcheroo deal with you. They will give you the option of buying (or forced buy) of their 1 share of the same stock within a given time period at the market price as long as you trade it with what your share(s) is worth when you make the deal.
In other words, they believe the stock is going up while you believe it is going down.
Here is how it can play out:
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You have your $10 share (required volumes are obviously much higher).
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A company will put their share against it and you have 6 months (varies) to make a move on it.
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On month three of the deal, the stock drops to $1 so you say that you want to sell your share for $10 and you get that money but you also agreed to buy their share in return.
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You pay the $1 market price for their share and you just made $9
Alternate scenario:
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The deadline for buying their stock is fast approaching and the stock is just going wild and is at $100 a share.
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You are forced to sell your stock at $10 and buy their stock for $100 for a loss of $90.
Most price moves won’t be that high and it is a little more complicated to set up but that is basically how it works.
I’d say no.
If GM’s stock price had dived because of a short-term panic over an easily corrected problem, or something that had no relation to how the company was being run, I’d buy it. GM’s problems, however, are deeply rooted, extend to just about every division of the company, and can only be fixed by massive, sweeping, painful changes to everything they do. Other companies in the same business are thriving, so an industry-wide bailout isn’t going to happen (and wouldn’t fix anything in the long run). Honestly, I think it might be easier to start a new car company from scratch than to turn GM around.
In actual practice, stock-shorting is quite simple. It works just like ordinary buying and selling, but in reverse order.
Normally, you find a stock you think will rise in value, buy shares of it, then sell them at a later date at (hopefully) a higher price.
For shorting, you find a stock you think will drop in value, borrow shares from someone and sell them (collecting the cash). You then purchase them back at a later date at (hopefully) a lower price, and return them to the person you borrowed them from. There are some additional complications (you have to pay for any dividends, and if everyone starts selling their shares in a panic, you may be forced to return the shares you borrowed), but that’s the basic idea.
Finding someone to lend you the shares may sound complicated, but usually it’s all taken care of automatically by your brokerage, so from the point of view of the trader at home, you just turn “buy low, sell high” into “sell high, buy low”.
MHO on the issue from about 18 months ago, and my stance hasn’t changed. Sure, the stock is cheap, but then shares of a company without much of a future can become mighty cheap. The only reason to hold GM stock was the dividend, IMHO, and that’s been cut in half.
GM going to $38.
Even with those stock prices, Ford has a larger market cap right now. Actually, even though I think GM is riskier, I also think it has a better chance of doubling than Ford does (not that I buy stocks on my evaluations of their chance of doubling).
Buying GM right now is unquestionably risky. They could go bankrupt. But, the spokespeople for GM – SO FAR – have repeatedly said that declaring bankruptcy to them is completely out of the question. Maybe that’s just to keep the stock propped up, but at least that’s the company line.
Furthermore, the unions really seem to realize that their future is tied to the future of GM. I don’t see them stubbornly hanging on and dragging GM down just out of principle, or spite.
Really, I think the primary problem is that American cars have just fallen out of favor. GM is making good cars. Sometimes, I think that all it’s going to take is the winds of public opinion to blow in another direction, and GM will be strong again.
If you’re looking to make big gains, sometimes you have to take big risks. 6 months ago, Krispy Kreme was idling at 5. They’d hired one “turnaround artist” and the stock wasn’t budging. The were embroiled in law suits. They hadn’t filed earnings for about 2 years. They were hugely shorted by big hedge funds. But what happened. . .they made a couple of changes, brought in a new “turnaround artist” and blammo: the stock is trading at 9.
Surely, there are companies in the same position that KKD was in that just go on to bankruptcy. If you were able to know which ones would double and which would go to zero, well, who would need Warren Buffet?
Final take: GM is a risky stock at historically low prices. I think that if you want to root root root for old GM, and are playing with money you can afford to lose, you could do worse.
If you’re 55 and talking about turning your whole portfolio over to GM, I’d say “no way”.
If you’re a 25 year old guy, thinking about putting $4000 (a month’s salary, maybe) into something risky, GM’s probably as good as the next one.
Some big differences from when you wrote that.
First, the divvie might have been cut in half, but the price has seemingly reflected that. It’s currently yielding 5.1%.
Second, they’ve sold (recently) most of GMAC. As the business press indicated, it seems crazy to sell your profitable arm, but they now have much more cash to play with for restructuring which they seem serious about. That just sounds to me like they’re dedicated to getting back to their roots: making cars that people want to buy and can afford.
Third, they’ve recently instituted these huge buyouts of their employees so to be less hampered by those committments.
All that said. . .well, as far as we know, it’s still a company that’s losing money. All of these things are happening this quarter and you’re not going to see immediate results from these actions, and maybe never.
If there were easy answers, we’d all be rich.
One major factor to consider when looking at a long-term decline in a company is the management attitude. If the management keeps repeating it’s previous mistakes, the decline will continue. GM, unfortunately, still believes it’s own propaganda. (Always a major mistake.)
When there is a major management changeover and the new management starts doing things significantly differently, then maybe it will turn around (and or could still be too late).
I cannot imagine that a big-time financier like Kirk Kerkorian (bought 5 million shares of GM) would lose so much money willingly. I think GM could be turned around-but it will take time. Firts, they should give up on making cars (except for luxury models). They should sell off their unused factories and concentrate on trucks. They would wind up smaller, but profitable. The days are over when GM could blow $15 billion on a new car line (SATURN). They need to stick to making vehices that they can sell at a profit. Look at Chrysler-they came back from the grave.
I’d rate FORD’s chances as much higher though-FORD makes money in Europe, S. American, and Asia. Their problems in N. American are fixable
Keep in mind that that when short selling you can lose a lot of money. When buying stocks, you can only lose the money you put in. But short selling, your loss is potentially unlimited. It’s certainly not for novices. And it’s certainly not for people asking for stock advice on an internet message board.
My husband and I were kicking around the idea of putting some small amount of money into the stock market, probably into 2 or 3 consumer products and/or retail companies. He suggested Ford. His suggestion was based on gut feeling more than anything, but I think he’s probably right. Well, right enough to gamble a small chunk of change on, anyway. Here’s his reasoning:
In the U.S., we have the “big three” automakers–Ford, GM, and Chrysler. Americans are quite attached to our big three, and will do a lot to support them, whether by giving preference to their products over “foreign” products, or by government bailouts, like with Chrysler in the '80s. So, it’s incredibly unlikely that all three, or even two of three, will go kablooie. But if things get bad enough, one might go out. And if one goes out, then the other two will not only get a big boost, but will be extra-safe, because all efforts will be expended not to lose another of the remaining “big two.”
So which of the big three is most likely to go kablooie? Chrysler is probably pretty safe. I don’t have any clue what’s going on over in Chrysler land, but I’d definitely give them the benefit of the doubt, given that they’re now “DaimlerChrysler,” and their history of turnarounds and innovative products. That leaves Ford and GM. And Ford seems to be the stronger choice. They’re certainly crippled by their entrenched corporate culture and their bloated pension rolls. But over the last couple of decades, their product line has just consistently been better. They occasionally come out with a mega-hit, like the Taurus or the Explorer, and the rest of their product line has been decent overall. And I actually like the Ford pickups. GM, on the other hand, seems to have a much more inconsistent product line. They have had some spectacular mis-steps (Pontiac Aztek, anyone?) and not too many consistently good models. And they kind of suck at branding. Anyway…
I think I’m pretty typical of someone who doesn’t like “American cars” much. (Subaru and Toyota for me, thanks.) The '70s and '80s crappy car era still looms large for me, and even though I think American cars have gotten a LOT better in the intervening decades, I still don’t see the kind of consistent good quality across the whole product line that I see in some foreign brands. I still feel like I’m taking more of a risk buying an American car than I am buying a Japanese or German car. But if I had to buy a Ford for some reason, I’m confident I could find a bunch of satisfactory options. A GM? I’d be miserable. Hell, when I have to rent a car, I try to get a Japanese car (thanks, Enterprise!). But as that is usually impossible, I get a Ford. I haven’t loved any of them, but I haven’t disliked them either. The couple of times I’ve had to take a GM, I really didn’t like it.
While both companies make most of their money on financing, it’s the product line that is the basis of the whole shooting match. IMHO, Ford has a better overall product line. They have a greater likelihood of coming out with a major hit. And they have a better chance of attracting the Japanese car buyer.
So, that’s our feeling on the matter. Yes, it’s personal opinion, and maybe not quantifiable, but if I were the OP, I wouldn’t invest in GM.
The small investor really doesn’t have any special insight into these companies that would allow him to profit. If a simple back-of-the-envelope logical analysis could reveal hidden profits in a certain stock purchase, you can be sure that all the institutional investors would have snapped it up, driving the price back up to where it should be.
The only chance a small investor has of ‘beating the market’ is to find small, obscure companies, and then study them like mad. If you’re not willing to take the time to really study a company, you’re better off just putting your money into mutual funds.