GM deal is a winner

Government privatizations have a track record of success, and this one is so good you can buy it in the aftermarket.

By Jim Cramer Nov 18, 2010 9:30AM

jim cramerPsst, you want a good idea? Buy from the federal government whenever it has a privatization up its sleeve.

 

We're all abuzz about General Motors (GM), of course, as we should be when faced with one of the world's biggest underwritings. But let's consider the other merchandise the government's thrown our way. First, even though we've seen a pullback in Citigroup (C), the government has given you an almost 30% return on the big underwriting it did to kick off the privatization of that bank.

 

But let's look further back in history. In 1979 the government provided a loan guarantee to Chrysler in return for stock warrants to buy 11.4 million shares of the automaker at $13 a share. With that guarantee, Chrysler, which sold at $7.50 at that time, was able to get a private loan.

 

Chrysler paid back the loan in 1982, and the government put the warrants up for sale. Chrysler bought the warrants back. And how could it not? The company had appreciated 280% since the loan guarantee. You had to buy Chrysler to cash in, but cash in you did.

The feds created Conrail out of a bunch of bankrupt railroads in the 1970s. In March of 1987 the government IPO'd the rail line, with 52 million shares at $28. One year later you had made 8.5% despite the crash of '87. Five years: 192%. Ten years: How about 707%. Post continues after video:

Citigroup, Chrysler, Conrail. Three successful privatizations. Three huge deals that you could have gotten in on. I know GM's been rationed out, but it has paid to take the other side of the government's trades. Everything at a price, but it is difficult to see how this time will be any different.

 

So buy. Hope you got some. It will be terrific. It will be terrific to $40.

 

Of course the GM IPO is about as tight as a drum with institutions and individuals scrambling for as much stock as possible. This is one of those "return to the casino" deals that makes so much sense that you can actually buy it in the aftermarket. I am using a $40 top on where I think you have to stop buying.

 

I almost never say buy in the aftermarket, but it is a rare large deal where the seller wants you to win.

 

So if you didn't get in, I would put a limit order to buy the stock at $38. Why not $40? Because I don't expect the stock to explode higher, and I don't want you to miss the opening, and I would hate to tell you to buy it where I would be ringing the register.

 

Couple of dollars' margin. Hopefully you get it at $35-$36. That would be just fine.

 

At the time of publication, Cramer had no positions in the stocks mentioned.

 

Related Articles

50Comments
Nov 18, 2010 11:11AM
avatar
if you want a real opinion, ask any previous GM stockholder, either preferred or common shareholders, how they perceive the value of the company. And remember they are still a zombie company to the tune of 40 billion. No thanks.  
Nov 18, 2010 11:37AM
avatar
I have two words to describe Cramer's assessment of GM stock being a "winner" ....... HORSE MANURE.

GM has a proven history of failure.  They manufacture sub-standard  products and would rather pay court settlements instead of issuing recalls. 

Everyone, including GM management, has stated that GM's future relies on the Volt, a $41,000 hybrid.  $41,000!!!!!  Why would anyone buy a unproven Volt for $41,000, when they could get a 16-year proven $24,000 Toyota Prius instead?   The $17,000 in savings would more than enough to pay for mileage difference the Volt MAY have.  PLUS you don't have to worry about being left strained along the side of the road ..... like you would with the Volt. 

Anyone who buys GM stock is a fool.   And everyone has heard the old phrase, "A fool and his money are soon parted!"

Nov 18, 2010 10:59AM
avatar

Wow, talk about fishing in the desert. Cramer has to go back to 1979 to find enough examples to back this sorry recommendation. I can hardly believe the pandering media hype on this GM IPO. Just remember folks, the U.S. Government will still own more shares than they sold after this IPO. Last week, they would have been perfectly happy to sell all those shares at $26 to get out of GM entirely.  What makes you think they won’t still be happy to sell their remaining shares at $26 in the future? And where will that leave you if you buy it at $38? Keep in mind too, this is likely to be a highly volatile stock for at least a few months after this IPO, like AIG was after it collapsed and then reverse split. Are you really prepared to see your $38 investment fluctuate by $5-10 in any single day for a chance to make $3-4 dollars

 

How about this deal; I’ll consider buying a few shares of GM stock (just to be patriotic) when Goldman Sachs publicly announces it will never short the stock for itself or any of its clients. 

Nov 18, 2010 10:55AM
avatar
GM is all brand and hype. Their product is overpriced and on a model by model comparable basis inferior to other brands.  The quality American product is Ford.  I expect in 6 months GM to be $15.00 or less and Ford in mid $20's.
Nov 18, 2010 10:44AM
avatar
An IPO price based on anticipation is a disaster in the making.Not much has changed in the infrastructure of the company,and union costs to maintain the initial price.Not to mention taking a TARP loan to (and I love this) to show they paid back their TARP loan.So,to those out there with a couple of neurons still functioning,you'll know what to do after it's issued.And you too will have a merry Christmas. 
Nov 18, 2010 11:41AM
avatar
Has everyone in the country forgotten that all the investors in the old GM lost their butts and now GM wants to do it again. Why weren't holders of worthless old GM stock not given the first opportunity to purchase the new GM stock ahead of big business. Why do the laws of this country protect big money and not the small investor? Anyone have a clue?
Nov 18, 2010 11:39AM
avatar
So a company becomes a great buy when the bondholders are told to go burn their bonds, the gov't  takes 50 Billion dollars from us and puts it in the company, and now it's worth $30.00 a share?  They still have billions in unfunded legacy pension costs and are wasting millions on an electric car that isn't electric, a car that no one will buy, even at its cost to manufacture.  Count me out!  Oh, except what they already took from me.... 
Nov 18, 2010 2:27PM
avatar

reddog285; I saw where GE is closing it's last light bulb factory and laying off the union workers making $42.35/hr running machines that MAKE the light bulbs.  Guess I'll have to buy my Chinese light bulbs at Walmart; wonder when they'll start selling cars made by GM:China?  There's a lot of difference between the US Union setting the min wage at $7.25 and paying someone $42/hr to RUN a machine making light bulbs.

Nov 18, 2010 1:13PM
avatar
Lots of ignorance being spouted on here as if it were knowledge. I'd bet that nearly everyone of you geekhead complainers takes money from the public sector in some form or fashion. Probably love anything and everything import, too. Even though those products are probably being assembled by children or people relegated to sub minimum wage decrees. Its time we stand up and support everything American we possibly can or else we will become subservient to the rest of the world some day sooner rather that later. If you  think there is a level playing field, I suggest you see what other countries are doing for their industries to get ahead. We need to support and protect our own or we WILL lose everything to the world.
Nov 18, 2010 10:54AM
avatar
Cramer is rarely right about anything.  You have a better chance of throwing darts at stock listings on a dartboard than listening to Cramer.  This GM thing reminds me of baseball cards except you have a better chance of baseball cards being worth something in 5 years than this GM IPO.  Just ask the folks that own Oldsmobiles, Saturns, and Pontiacs...
Nov 18, 2010 11:54AM
avatar
This is not right! People lost retirement and now GM is trading at $35.00? How? Ford didn't go through any of this and their stock is at $16.00 not sure how they figure Gm is worth twice the amount of Ford stock. If anyone buys this at $35.00 they are idiots! It has one way to go and that's down! Not to mention that this goes against all of the American values that this country was built on. GM shouldn't even be around! They screwed their own dealers!!! WAKE UP PEOPLE! DO WHAT IS RIGHT AND BUYING THIS PAPER IS NOT SMART. Any profit that company made should go back to the people who lost their retirment, jobs, and the American public! Americans bailed them out, so after all the dealers and employees GM cut, those people should be paid back 1st.  Does anyone notice how GM is almost patting themselves on the back for acting like the accomplished something. I'll tell you I have never seen a GM commercial saying thank you for saving our azz. Now they want our support? Are you kidding me?
Nov 18, 2010 11:52AM
avatar

So you guys, i bet that if this IPO have being a total disaster they will be ranting about Obama, but because the IPO was successfully and the Gov own only 31% of GM now and it is not Government Motors anymore, now comes the whining about the IPO, blah blah and more blah.

We live in America buy it, if you like it, do not if you don't, when you got old GM stock you knew that owning stock was risky business no? as it is now, so you want to own stock and be fully protected? put the money in CD's and forget the Market is not for you.

 

 

Nov 18, 2010 11:29AM
avatar

Cramer is an outright FRAUD and SNAKE OIL SALESMAN. Two days ago he was spouting about don't even bother buying the new GM, you are better off buying Ford.

 

Now he opines about how great this company will be.

Cramer talks out of both sides of his mouth depending on who the audience is so his credibility is ZERO.

 

GM still have an underfunded pension even after dumping $6 billion into it after the stock sale. They WILL STILL have 10 times the number of retirees to workers paying into the system which means their DB plan is always paying out MORE than it's taking in by a HUGE multiple and if the stock/bond markets have a bad couple of years this exacerbates this problem even more.

 The US government will STILL OWN 24% of this company AFTER the IPO, they still have billions in debt to pay off to the government.

 

The one "good" thing is that they have about $40 billion in tax losses they can carry forward for years so the IRS isn't going to be getting much tax revenue from them anytime soon. 

 

So the US taxpayer gives them $50 billion for a bailout in order to save the company and tens of thousands of jobs and tax receipts for towns/cities. Then the IRS aka the tax payer gets ZERO tax revenue until this tax loss carry forward is exhausted which will take a decade at least depending how profitable the new GM is. This little bailout is costing the taxpayers more like $100 billion when you add it ALL up.

 

 

 

.

Nov 18, 2010 11:22AM
avatar
I agree with monomike. In the 20's within 6 months.
Nov 18, 2010 11:08AM
avatar

just the fact that cramer is recommending this should be more than enough to tell you why this is a bad deal. Can't wait to start shorting this.

 

Think any of the old GM bondholders will buy? Oh wait that's right, GM and the government stole their savings and gave it to the unions.

Nov 18, 2010 3:12PM
avatar
People still listen to this clown?
Nov 18, 2010 1:29PM
avatar

Wow, listen to all the so called 'capitalists'  and 'free marketers' whine.  I've heard these people before, usually when extolling the virtues of privatizing social security.  But what about the risk? they're asked.  The answer is usually to sack up, nothing is garunteed.

Now, however, comes the whine that the original investors should have their loosing bets covered.  So, if the other guy looses, tough, but, if I loose, it's where's my gubmit check.  Typical reactionary thinking.

Face it, most of the whining is comming from people who are mad that this was Obama's idea and it appears to be working which drives them crazy.

Nov 18, 2010 1:12PM
avatar
reddog: Unions are the epitome of evil! Everyone complains about being over-charged for products, but what about being over-charged for labor? Why am I forced to pay some union, crack smoking, loser $60.00 an hour for a job someone more wholesome would do for $40.00 dollars an hour? Why is the "other" guy/gal charging $40.00 dollars an hour priced-out from competing or working? Don't they deserve to be employed too?
Nov 18, 2010 11:52AM
avatar
I can't believe Cramer is still even allowed a format to spout his liberal BS views. He led his followers right off the cliff during the recent collapse in 2008 and now he's beating the drum for Government Motors?? Wake up America
Nov 18, 2010 11:36AM
avatar
Interesting Mr Cramer that these public offerings are going to be sold only to China.  American company "Excuse me".
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

118
118 rated 1
270
270 rated 2
472
472 rated 3
714
714 rated 4
624
624 rated 5
608
608 rated 6
623
623 rated 7
445
445 rated 8
319
319 rated 9
125
125 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
AAPLAPPLE Inc10
ATVIACTIVISION BLIZZARD Inc10
BIDUBAIDU Inc10
BMYBRISTOL-MYERS SQUIBB CO.10
CELGCELGENE CORP10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.