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.

 

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