GM Stock Rallies

[steinravnik]

Originally Posted by cavaselis

Has anybody thought what would happen to the stock if oil drops to say 100 or 80 a barrel which I for one believe it will, people will start buying trucks and suvs again and walla GM makes money stock goes back up. It just seems like everyone assumes oil is gonna be at 150 a barrel for ever I dont think our economy can withstand that.

Just my .02

I really doubt that. SUVs and trucks were already on a decline before all this oil stuff hit. Average Americans' memories are short, but not that short!

[joshls]

Originally Posted by doh

Ouch!!! Sorry to hear of your loses, one of the few here that has "Put thier money where thier mouth is"

It is a "Bargan at sub $10 mark" with todays economy, I mean where else to put your $$$ that is somewhat safe today?

GOLD (GLD)

[steinravnik]

Originally Posted by joshls

GOLD (GLD)

Not necessarily, gold can become overvalued and even enter a bubble just as much as any commodity.

I would say that a balanced portfolio of stable, international currencies and commodities is a good bet. I would steer clear of equities.

[jasaero]

Originally Posted by wescoent

Just because you haven't heard about it, doesn't mean something isn't in the works. Even at $11, GM is still at a very high risk for a takeover.

I don't think anyone is seriuosly thinking about that. The debt inherited in taking over GM is just so massive, I can't really see anyone confident they could figure a way to show a worthwhile profit with such huge overhead just to cover debt before even getting into all the operating costs from payroll and benefits and such. The number are huge though if they turn the image around and market share start to actually recover and not regress.

[jasaero]

Originally Posted by 2002 Caddy

Google "peak oil"

You will find just as much commentary on peak oil being a hoax as you will on it being something real today. Particularly the longer prices on crude stay above $100. Do you have any clue how many billions of barrels of oil are recoverable for well under $100/bbl??? Hundreds of years worth with current consumption increase trends. Now once you get down to $40-80/bbl the story of peak oil becomes a bit more within our lifetimes. My guess is it will settle around $40 per barrel or even good bit lower for a good bit of time if Saudi or Iraq get output a bit too high and consumption falls a bit to low for awhile because of some habit changing. When there is nearly 20 years or more of oil left that is recoverable below the $10/bbl point it's tough to say what will happen. My guess is output can get really high compared to today in the mideast and they will still be pumping well below the $20/bbl point even if they need some pretty heavy spending to get the extra taps into the reserves.

At $150/bbl though we will probably slowly catch upto saudi on output if they let the price stay that high, even if new drilling isn't allowed. They now believe the ND, SD, MT, and Canada areas of the Williston Basin probably have more oil than Saudi arabia. Now most wasn't thought to be recoverable, but no one ever investigates how much oil one might be able to recover if you spend 100 or more per barrel trying to get to it. Most studies up there on the recoverable side of things max out at around $40/bbl. It's all rural there though and there is very little restiction on drilling so you could technically tap WAY more wells than anyone would normally take into account in a study of how much of the reserves are recoverable as $40/bbl only allows for wells into the bigger and more volumous pockets of crude. At $100+/bbl more smaller and deeper pockets become feasable while still making a profit. Basically peak oil will only happen when renewable volume AND price make drilling obsolete more than likely. It's doubtful we will peak before that ends up happening.

[jasaero]

Originally Posted by steinravnik

I really doubt that. SUVs and trucks were already on a decline before all this oil stuff hit. Average Americans' memories are short, but not that short!

Body on frame SUV to CUV maybe. And trucks only slightly if much at all. Truck sales were pretty flat even as prices came up above 3. It was when it ticked into and near the $4 dollar point that it really started hitting trucks. Below $3/gallon gas for 6-12 months would definately drop fuel economy quite a ways down peoples "most important" list. We won't see the SUV craze of the last 10 years ever again, but that was spurred by sub $1/gallon gas here and there in the late nineties. Also the whole global warming and climate change tactics are more effective for whatever reason when they are coupled with an energy crisis. Imagine that!! Basically there are things that would continue to keep a lot away from SUVs and trucks even with more reasonably priced gas, but nothing like we are seeing today.

[jcgable]

Very temporary, though I would expect the price to bottom to bottom closer to $7.50 than $5.00. Regardless of their future prospects, GM is highly undervalued at the moment. A projected 2 year recovery isn't exactly as bad as some corporate entities, and despite their losses, they have maintained positive cash flow for the last 5 years, meaning they are unlikely to burn through all of their reserves in the foreseeable future.

I'll also be happy to provide a source if necessary. I am looking at their published statements of cash flows and balance sheets.

[kenman923]

Originally Posted by Ambalanche

Can't go much lower than it did. I'm surprised Kerkorkian or someone like that hasn't tried a hostile takeover since the stock was so low!

Now let's not give Kekorkian or anyone else any ideas.

[fp115]

Originally Posted by 2002 Caddy

~$43.00

I bet you are glad you don't have any like me that are in the 90's...

[prototype66]

Originally Posted by kenman923

Now let's not give Kekorkian or anyone else any ideas.

A perfect "in" for buickman and his plan!
Go for it dude!

[wescoent]

Originally Posted by 2002 Caddy

I called my "overly negative" broker today and asked him...

Why?

His answer was pure genous and very simple... He asked me...
If a company splits a stock 2 for one and makes no other news... what do you think the stock price will do?

I answer, It will be cut in half...

Very good he says... glad you were paying attention when you got you MBA...

Next question... Lets say you have a company with a Market Cap of 5.5 Billion and they anounce that they just found 800 Million in cash... Now what is the market cap worth?

About 6.3 Bill, I answer.

Very good he says... Last question... where is GM trading...?
around $11.30 a share with a new market cap of 6.4 Billion....
A-ha... the light goes on...

His POV almost all of the rally to 11.30/11.40 can be directly attributed to the cash generated from the elimination of the dividend.

He still wants me to sell...
I hate to say it but I'm going to dump half.

Thanks for posting this. This is a rather remarkable textbook case of investment theory, so much so, that I called my old investments professor yesterday to point this out, and we had a nice conversation.

That being said, I took out a very large short position on GM yesterday. This is going to be free money.

[K-1]

Originally Posted by 2002 Caddy

No, it makes perfect sense.
The promise to pay a dividend is a future liability.

Eliminating a liability is the same as getting an asset.

Look at it this way... Lets say you have a $500 a month car loan... Lets say that GM calls you up and says "K-1, we are forgiving next months payment cause you are a loyal customer" Since you now have that $500 to spend on something else, you just got $500 richer.

Long term Buick is right this will have a further negative impact... According to my broker this is only a short term anomaly that you see anytime a firm issues (or stops issuing) a dividend

I'm not richer, that $500 is just being spent elsewhere (i.e. another future liability). You've also failed to explain how this affected the share price or the number of outstanding shares.

[K-1]

Originally Posted by wescoent

Thanks for posting this. This is a rather remarkable textbook case of investment theory, so much so, that I called my old investments professor yesterday to point this out, and we had a nice conversation.

That being said, I took out a very large short position on GM yesterday. This is going to be free money.

A short position on a stock that's at historical lows? Does this not defy all logic?

[wescoent]

Originally Posted by K-1

I'm not richer, that $500 is just being spent elsewhere (i.e. another future liability). You've also failed to explain how this affected the share price or the number of outstanding shares.

When a company earns a profit, it can go into two possible places: retained earnings (which the company re-invests into itself) or shareholder dividends.

The stock price represents the sum of all those future retained earnings, since the profits being re-invested is making the company more valuable. The value of all future dividends is NOT a part of the common stock price, since it isn't being re-invested... merely being given away to shareholders.

Therefore, by stopping the dividend, the common stock rises in value, since the money that would have OTHERWISE been paid out is being re-invested back into the company.

You're correct in that this doesn't increase the value of the company. This is why the common stock price rises. As a consolation to the fact that GM shareholders lose their dividend income, the value of the stock rises to make up for it. If the value of the stock didn't rise with the elimination of the dividend, then in fact, GM would have lost value.

[wescoent]

Originally Posted by K-1

A short position on a stock that's at historical lows? Does this not defy all logic?

If it were, it WOULD defy logic.

However, GM was trading in the mid $11 range yesterday, up 20% from historic lows, which I am more than certain it will touch as more bad news comes back in.