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Here We Go Again: Riding The Detroit Wave.

Posted by: David Kiley on July 23, 2008

Are you sitting down? If you have the stomach for it, and have some mad money, you could have been making a tidy some to make up for 401k fund losses betting on Ford and GM.

Ford and GM? Detroit automakers?

Consider that GM was trading at $10.29 on July 3. Today, it’s $15.86. The fact is that GM at $10 a share was, and is crazy. Warren Buffet said a few months ago that buying GM at $22 was a good move because its breakup value was over $40 billion. It’s market cap was around $10b. Do the math for people who backed the truck up on GM shares at $10.29 a share. GM’s own dealer council just bought over $1 million in GM shares, trying to send a message to everyone that is investing in the automaker.

Ford? On July 11, Ford share had dropped to $4.45. Today, it’s $6.18. Kirk Kerkorian recently paid $8 per share. If Kerkorian just paid $8, and it dropped to below $5…I’m not a stock picker journalist…but I say back the truck up.

I know…this is day trading stuff. But when you see century old industrial icons with as much product on the road as they have, these market caps of less than $10 billion just don’t make sense.

And some daring investors are making truckloads of profit.

Reader Comments


July 24, 2008 12:56 PM

Stock prices of GM and Ford are determined by pure open market forces called -get ready Mr. Kiley- "Supply-and-Demand." Even though we mere mortal readers are swooned over by fancy celebrity names and so called "Century Old Industrial Icon," the market forces are more objective. GM and Ford stock prices reflects the market's perception of their product, leadership, sales, current profit,and future potentials. The car manufacturing business has become very competitive because building cars is no longer beyond the ability of many nations. At one time, only the most advance countries could manufacture steel, or TV or ceramic pottery. Today, there are over a dozen car manufactures in every continent except Africa. Given the highly competitive car market and the fact that many GM and Ford cars are not rated as high as cars from other major manufactures, GM and Ford stock prices include a discount factor for potential losses. As a matter of historical record, both GM and Ford have consistently lost North America market share to their competitors during the last decade. Some prudent investors ask the important question, What is GM or Ford worth 2 to 5 years from now? They know Kerkorian tendered stock price, $8/share, included an incentive factor because he wanted some control over the corporation board. Hence, Kerkorian's purchase price is not representative of the market price or open market buyer. As CEO of a conglomerate corporation with billions of $$$ spread over various industries, Buffet's comment is also tainted with self interest. Mr Kiley once again demonstrates his superb repertoire of knowledge in an area that's beyond his expertise. We are confounded as to why Mr. Kiley elected to embarrass himself through his so called journalism.

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