12 Big-Name Stocks to Sell Now
Hit the Brakes When it Comes to GM
There’s a lot of revved-up excitement on Wall Street right now in front of GM’s new IPO. Strong investor demand for the salvaged U.S. automaker’s new offering has pushed GM’s initial public offering to $32 to $33 per share. It was announced today that GM plans to raise $12 billion, making the IPO the second largest in U.S. history.
Now, if you’re an investor looking to get in on the ground floor of GM’s comeback, then you’re probably excited about the prospect of a groundswell of demand for the bailed-out auto-giant’s shares. But my advice is to put the brakes on that excitement.
Don’t get me wrong, I am not opposed to auto stocks or IPOs. I bought and made money on electric car maker Tesla Motors’ (NASDAQ: TSLA) IPO earlier this year, and I’m also a big fan of Ford Motor (NYSE: F). Ford’s recent quarterly earnings surged 68%, a clear sign that the auto industry is making a comeback. Yet that still doesn’t make me bullish on GM’s IPO. I think the company faces too many roadblocks, and as such, investors should avoid the stock like the plague. Here are my top five reasons why.
#1 Unproven and Unstable Management
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On Sept. 1, Ed Whitacre ceded his job as CEO to former GM director Daniel Akerson, a direct-talking and often abrasive former telecom executive without any automotive experience.
GM has been a revolving door at the top, with Akerson becoming the third CEO in the last two years.
# 2 Shrinking Market Share
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GM is bleeding out when it comes to its share of the U.S. auto market. The troubled car maker’s market share slipped to a measly 18% in September, near its lowest point ever.
I suspect that unless this metric improves markedly, GM will have a tough time making significant headway going forward.
#3 No Lucrative Finance Unit
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GM sold a majority stake in its very lucrative GMAC (General Motors Acceptance Corp.) finance unit in 2006 in a bid to raise cash. Now, GM is trying to correct this deficiency by purchasing finance firm AmeriCredit, a provider of subprime financing, for a whopping $3.5 billion.
This new purchase poses a bevy of big integration challenges going forward, especially for a behemoth like GM.
#4 Lots of Sellers
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A big pool of sellers is champing at the bit to dump GM. The Obama administration has a lot at stake in this IPO. The government would love to sell its GM shares at a profit to show taxpayers that they made back their money on the unpopular bailout.
That means the Treasury Department has 912 million shares and in itchy trigger finger on the “sell” button. In addition, Canada and the UAW also are big potential sellers.
#5 Massive Employee-Benefit Liabilities
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Unfortunately for GM, the company faces an astounding $26 billion in unfunded pension liabilities and $9 billion of retiree health-care costs. This is a huge fiscal overhang that will likely put a lot of downward pressure on the company’s bottom line, and its stock, going forward.
As if these five reasons weren’t enough for investors to avoid GM like the plague, consider that the stock is likely also overvalued. If GM shares open above $30, it means the company is being valued at more than $46 billion — roughly the same as what Ford is worth today. The two companies are far from equivalent fiscally, and in nearly every other sense. So, if you’re ready to get behind the wheel of GM’s IPO, I say think a second time. You’ll be much better off staying on the sidewalk.
