GM - General Motors

[tylerdurden]

I'm loving the weakness in the share price. We just need it to stay low through the blackout window so that management can keep buying back shares at these prices.

 

I love it too. It seems the stock price will be lower for a while so they should be able to benefit from the lower price.

[muscleman]

I wonder why are the activists of GM pushing for more buybacks instead of merging with FCAU and having Sergio to be the CEO of GM? That would probably end up much better than a simple share repurchase.

 

With that said, what valuation do you assign to GM?

[tylerdurden]

I wonder why are the activists of GM pushing for more buybacks instead of merging with FCAU and having Sergio to be the CEO of GM? That would probably end up much better than a simple share repurchase.

 

With that said, what valuation do you assign to GM?

 

I assign $50 based on $5 EPS in 2016.

 

Why do you think merging with FCAU and having Sergio as the CEO would create value for GM shareholders? I don't think GM needs a complicated merger; they just need to execute their plan and I don't see any reason for not giving Mary Barra a chance...

[constructive]

I wonder why are the activists of GM pushing for more buybacks instead of merging with FCAU and having Sergio to be the CEO of GM? That would probably end up much better than a simple share repurchase.

 

Even though US antitrust review has become quite lenient over the past few decades, GM merging with Chrysler would probably not pass.

[snow pea]

I wasn't under the impression Sergio is in it for the long haul.  I don't have a link, but I seem to recall he indicated he would see through the 5-year plan but wouldn't commit to being there longer.  Indeed, to some degree I wonder if the FCAU consolidation talk isn't (as a second, third, or fourth level consideration; I don't doubt the primary reason(s) of improving competitive standing etc. is totally valid and the driving factor) also a potential ticket out for him.  Maybe I'm wrong; I hope so, I'm very impressed by him.

[Mephistopheles]

GM continues to drop. The original $5 billion for the buyback is now 9% of the market cap. Let's hope they're really taking advantage here.

 

Bought more warrants today.

[merkhet]

I believe that they blew through $750 million in about 2 weeks in March, and the blackout window lifted a few days after they reported on April 23rd, so my guess is that they've been taking significant advantage during this period.

[merkhet]

http://www.wsj.com/articles/uaw-car-makers-weigh-new-class-of-hires-1431301465

[Eye4Valu]

I have not gone through this thread yet, but am curious about the GM warrants. Can anyone provide some quick thoughts?

[Mephistopheles]

I have not gone through this thread yet, but am curious about the GM warrants. Can anyone provide some quick thoughts?

 

Sure. They have a time value of about $.55 + the dividend which is currently $1.44. So that's roughly a cost of 5%. Expiration is in October 2019.

 

If you look past the costs of recalls and restructuring, and assume that they can bring Europe and South America to break even, GM will easily earn $4 EPS next year. They are aggressively buying back $5 billion of their stock, which was roughly 8-9% of market cap when it was announced. Catalysts include continued strength in the U.S. auto market, which still hasn't picked up all the slack from the crisis as others have mentioned; more profitable vehicles such as trucks, SUVs, and crossovers are increasing their share of the mix mainly due to lower gas prices. They're losing money everywhere except North America and China. Getting to $0 of profits in these places seems like low hanging fruit given the management's increased focus on efficiency and profitability, even at a loss of market share. They pulled Chevy from Europe, for example. The company also has $20-30 billion in deferred tax assets on the balance sheet and doesn't have to contribute to its pension plan for 3 or 4 more years I believe. This will boost cash flow even more than earnings.

 

Risks include further dollar strengthening. Also, NA is inching towards 10% EBIT margins which may start to turn the other way if the cycle reverses. The $9 billion capex budget bothers me. They said they can earn 20% ROIC but that seems like a high target. Maybe someone else can shed light on this.

 

Overall, the warrants at 5% seem like a good risk reward at this price.

[vinod1]

I have not gone through this thread yet, but am curious about the GM warrants. Can anyone provide some quick thoughts?

 

Sure. They have a time value of about $.55 + the dividend which is currently $1.44. So that's roughly a cost of 5%. Expiration is in October 2019.

 

If you look past the costs of recalls and restructuring, and assume that they can bring Europe and South America to break even, GM will easily earn $4 EPS next year. They are aggressively buying back $5 billion of their stock, which was roughly 8-9% of market cap when it was announced. Catalysts include continued strength in the U.S. auto market, which still hasn't picked up all the slack from the crisis as others have mentioned; more profitable vehicles such as trucks, SUVs, and crossovers are increasing their share of the mix mainly due to lower gas prices. They're losing money everywhere except North America and China. Getting to $0 of profits in these places seems like low hanging fruit given the management's increased focus on efficiency and profitability, even at a loss of market share. They pulled Chevy from Europe, for example. The company also has $20-30 billion in deferred tax assets on the balance sheet and doesn't have to contribute to its pension plan for 3 or 4 more years I believe. This will boost cash flow even more than earnings.

 

Risks include further dollar strengthening. Also, NA is inching towards 10% EBIT margins which may start to turn the other way if the cycle reverses. The $9 billion capex budget bothers me. They said they can earn 20% ROIC but that seems like a high target. Maybe someone else can shed light on this.

 

Overall, the warrants at 5% seem like a good risk reward at this price.

 

Good points! I largely agree with your thoughts.

 

On warrants though, the cost is closer to 9%, as you are only borrowing around $17. So they seem pretty expensive and with any dividend increase they are going to be a lot more expensive.

 

Vinod

[Mephistopheles]

I have not gone through this thread yet, but am curious about the GM warrants. Can anyone provide some quick thoughts?

 

Sure. They have a time value of about $.55 + the dividend which is currently $1.44. So that's roughly a cost of 5%. Expiration is in October 2019.

 

If you look past the costs of recalls and restructuring, and assume that they can bring Europe and South America to break even, GM will easily earn $4 EPS next year. They are aggressively buying back $5 billion of their stock, which was roughly 8-9% of market cap when it was announced. Catalysts include continued strength in the U.S. auto market, which still hasn't picked up all the slack from the crisis as others have mentioned; more profitable vehicles such as trucks, SUVs, and crossovers are increasing their share of the mix mainly due to lower gas prices. They're losing money everywhere except North America and China. Getting to $0 of profits in these places seems like low hanging fruit given the management's increased focus on efficiency and profitability, even at a loss of market share. They pulled Chevy from Europe, for example. The company also has $20-30 billion in deferred tax assets on the balance sheet and doesn't have to contribute to its pension plan for 3 or 4 more years I believe. This will boost cash flow even more than earnings.

 

Risks include further dollar strengthening. Also, NA is inching towards 10% EBIT margins which may start to turn the other way if the cycle reverses. The $9 billion capex budget bothers me. They said they can earn 20% ROIC but that seems like a high target. Maybe someone else can shed light on this.

 

Overall, the warrants at 5% seem like a good risk reward at this price.

 

Good points! I largely agree with your thoughts.

 

On warrants though, the cost is closer to 9%, as you are only borrowing around $17. So they seem pretty expensive and with any dividend increase they are going to be a lot more expensive.

 

Vinod

 

Oops, you're right. Thanks for pointing that out. The cost is 9%, but the stock has to move up about 5% annually. Maybe an options rolling strategy is more profitable as per Eric's suggestion, which I'll need to look into.

[jrallen81]

I imagine the answer is no given the short horizon, but can anyone make a case for the "C" warrants? Obviously a very high risk proposition, should be sized accordingly.

[Mephistopheles]

I imagine the answer is no given the short horizon, but can anyone make a case for the "C" warrants? Obviously a very high risk proposition, should be sized accordingly.

 

The $42 January 2016 calls are a better deal at $.43 vs. the C warrants which are $.70 and expire two weeks early and have a strike of $42.31.

 

Not sure why there is such a huge discrepancy between the two. Does anyone have a broker which allows to short the C warrants? Mine does not.

 

Shorting the warrants and going long the $42 calls might be a good bet. As long as the cost of borrowing them is .70-.43, so $.27 or less, which would be 68% annualized, then there is no chance of losing money.

[sswan11]

Report: Criminal actions found in GM ignition switch case, USA Today

 

http://www.usatoday.com/story/money/cars/2015/05/22/gm-ignition-switches-criminal/27822305/

[Mephistopheles]

I have not gone through this thread yet, but am curious about the GM warrants. Can anyone provide some quick thoughts?

 

Sure. They have a time value of about $.55 + the dividend which is currently $1.44. So that's roughly a cost of 5%. Expiration is in October 2019.

 

If you look past the costs of recalls and restructuring, and assume that they can bring Europe and South America to break even, GM will easily earn $4 EPS next year. They are aggressively buying back $5 billion of their stock, which was roughly 8-9% of market cap when it was announced. Catalysts include continued strength in the U.S. auto market, which still hasn't picked up all the slack from the crisis as others have mentioned; more profitable vehicles such as trucks, SUVs, and crossovers are increasing their share of the mix mainly due to lower gas prices. They're losing money everywhere except North America and China. Getting to $0 of profits in these places seems like low hanging fruit given the management's increased focus on efficiency and profitability, even at a loss of market share. They pulled Chevy from Europe, for example. The company also has $20-30 billion in deferred tax assets on the balance sheet and doesn't have to contribute to its pension plan for 3 or 4 more years I believe. This will boost cash flow even more than earnings.

 

Risks include further dollar strengthening. Also, NA is inching towards 10% EBIT margins which may start to turn the other way if the cycle reverses. The $9 billion capex budget bothers me. They said they can earn 20% ROIC but that seems like a high target. Maybe someone else can shed light on this.

 

Overall, the warrants at 5% seem like a good risk reward at this price.

 

Good points! I largely agree with your thoughts.

 

On warrants though, the cost is closer to 9%, as you are only borrowing around $17. So they seem pretty expensive and with any dividend increase they are going to be a lot more expensive.

 

Vinod

 

Should we be thinking about the dividends differently than the time value when considering cost of leverage?

 

A dividend yield serves as somewhat of a floor for the stock price as people are more attracted to it. Also, higher dividends generally mean the company is in good shape which also means a higher stock price. Conversely, a company having serious issues may cut the dividend which would bring down the cost (of course in this scenario the intrinsic value of the option suffers as well).

 

Would love to hear your or anyone else's thoughts on this matter.

[CorpRaider]

A couple of relevant stories, which most have probably already read. 

 

Jack Hough of Barron's sez GM is cheap:

 

http://online.barrons.com/articles/gm-stock-is-40-undervalued-1432294295

 

 

Sergio wants to hook up:

 

http://www.nytimes.com/2015/05/24/business/detroits-chief-instigator.html?_r=0

 

[saltybit]

Aswath Damodaran talking about the auto industry:

http://aswathdamodaran.blogspot.com/2015/05/no-light-at-end-of-tunnel-investing-in.html

 

[vinod1]

I have not gone through this thread yet, but am curious about the GM warrants. Can anyone provide some quick thoughts?

 

Sure. They have a time value of about $.55 + the dividend which is currently $1.44. So that's roughly a cost of 5%. Expiration is in October 2019.

 

If you look past the costs of recalls and restructuring, and assume that they can bring Europe and South America to break even, GM will easily earn $4 EPS next year. They are aggressively buying back $5 billion of their stock, which was roughly 8-9% of market cap when it was announced. Catalysts include continued strength in the U.S. auto market, which still hasn't picked up all the slack from the crisis as others have mentioned; more profitable vehicles such as trucks, SUVs, and crossovers are increasing their share of the mix mainly due to lower gas prices. They're losing money everywhere except North America and China. Getting to $0 of profits in these places seems like low hanging fruit given the management's increased focus on efficiency and profitability, even at a loss of market share. They pulled Chevy from Europe, for example. The company also has $20-30 billion in deferred tax assets on the balance sheet and doesn't have to contribute to its pension plan for 3 or 4 more years I believe. This will boost cash flow even more than earnings.

 

Risks include further dollar strengthening. Also, NA is inching towards 10% EBIT margins which may start to turn the other way if the cycle reverses. The $9 billion capex budget bothers me. They said they can earn 20% ROIC but that seems like a high target. Maybe someone else can shed light on this.

 

Overall, the warrants at 5% seem like a good risk reward at this price.

 

Good points! I largely agree with your thoughts.

 

On warrants though, the cost is closer to 9%, as you are only borrowing around $17. So they seem pretty expensive and with any dividend increase they are going to be a lot more expensive.

 

Vinod

 

Should we be thinking about the dividends differently than the time value when considering cost of leverage?

 

A dividend yield serves as somewhat of a floor for the stock price as people are more attracted to it. Also, higher dividends generally mean the company is in good shape which also means a higher stock price. Conversely, a company having serious issues may cut the dividend which would bring down the cost (of course in this scenario the intrinsic value of the option suffers as well).

 

Would love to hear your or anyone else's thoughts on this matter.

 

The things you mention provide either psychological benefits or provide signalling. I have trouble seeing them as having a separate value beyond the operational performance of GM.

 

Vinod

[dutchman]

Is anyone familiar with gmm.u which trades in Toronto-tse.?

Does it trade in Canadian or us dollars?  Seems to track the us price closely, and im confused!  i would like to buy in Canadian.

 

[jawn619]

CEO Sergio Marchionne said to be working with activists to convince General Motors of merger.

[CorpRaider]

Said be ti be seeking to work with activists (or any other large gm shareholders), but reportedly hac thus far received "the heisman."  I'm avoiding the risks of such a proposed course of action.  Gm doesnt need it.  Pass.

[saltybit]

http://www.ft.com/intl/cms/s/0/95078a10-1699-11e5-9883-00144feabdc0.html#axzz3doBfNTS7

 

General Motors activist shareholders go cold on Fiat tie-up

[merkhet]

The interesting thing here is that GM should be a big beneficiary either way the Fiat thing plays out. If Fiat finds a way to make an offer to GM, they'll likely have to offer a premium, so GM shareholders win. Alternatively, in order to make such an offer not palatable to GM shareholders, management has to deliver in the form of better operating results and/or better capital allocation (maybe an increased buyback) and, once again, GM shareholders win.

 

Thanks Marchionne. :)

[txlaw]

The interesting thing here is that GM should be a big beneficiary either way the Fiat thing plays out. If Fiat finds a way to make an offer to GM, they'll likely have to offer a premium, so GM shareholders win. Alternatively, in order to make such an offer not palatable to GM shareholders, management has to deliver in the form of better operating results and/or better capital allocation (maybe an increased buyback) and, once again, GM shareholders win.

 

Thanks Marchionne. :)

 

I kind of get the feeling that this is all smoke and mirrors, and Marchionne is really angling for someone else to get involved with FCA.  VW would be a great fit, for example.  Maybe Marchionne can convince Piech, who just left the board, to stir up some trouble.

 

Regardless, I agree that this is good for GM shareholders. ;D