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Are General Motors And Ford Good Stock Buys?

Read more articles on Cars and Trucks and Investing.

September 14, 2006

Posted by neillevine

About This Editor: I am a writer. Have been writing for other sites, but expect to do most of my future work HERE! My expertise extends from the esoteric such as burning hydrogen to the unpredictability of the stock market and my writing makes me a jack of all trades and exasperated master of none. I have had some influence over national wildfire and water policy and there are hints of a change in energy policy, BUT as Samuel Goldwyn once said, "A verbal promise is not worth the paper it is written on."

         

Say what you will about the stock market but, in general, investing usually pays off better than keeping money in the bank or investing in bonds or some other comparatively safe financial vehicle, although it is possible to lose money on bonds if you are holding notes from a company that cannot redeem its paper obligations or the price drops because of market changes such as rising interest rates.

Old saw, financial rules are, in most instances, the correct road to follow. Invest in a market basket of securities, meaning several different companies. High potential rewards usually accompany high potential risks. Do competent research. Holding for the long term usually works. Buying at the top is usually very risky. Experience and understanding are helpful and so on.

Since the current market seems stable and the economy continues to grow, it appears that the value of most listed stocks will also consequently increase. This translates to mean that new highs will outnumber new lows by a significant margin. The problem is figuring out the winning stocks.

Take General Motors (GM). Everyone knows that the company makes cars. Recently, they have been losing market share and money. But they hope that worker buyouts and an alliance with Renault and Nissan of some as yet publicly undefined sort will help correct their finances. The low this year is $18.33 and the high $33.50. The market capitalization is around $19 billion and the all time high for the stock is almost $90. The questions that ought to be answered are how likely is it the company can make money going forward. Will a new strategic alignment solve the problems the company faces or will they keep losing ground to the likes of Toyota because energy prices remain high, driving shoppers to Japanese car makers more fuel efficient models.

Then there is Ford (F), now around $9 a share with a high this year of only about $10, but an all time high of $55 and a low market capitalization of only around $17 billion. Can new CEO Alan Mulally turn things around after Ford completes its current round of buyouts and cost savings. If he can, the stock will be worth much more than it currently sells for.

Since current tax breaks favor investing for income, it should be pointed out that the dividend for GM is 3 percent and for Ford it is 2 percent.

The question is can they turn the corner to profitability? A person has to have insight into the future to answer the question correctly. This writer thinks they will probably increase shareholder value because the problems they currently face are not insurmountable, but the million dollar answer will only come in the course of time.