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| Trader Wizard Perspective Daily global capital markets advice "Blog" posted before the NYSE morning bell and throughout the trading day. | ||
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| Who is Trader Wizard? | ||
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| Trader Wizard's Mission
My goal with this Ezine, other than enjoying the challenge of a weekly ‘buy or sell’ recommendation, is to continue the independent investor information, education and facilitation process started with Trader Wizard. | ||
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| Articles by Trader Wizard | ||
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Week 48 In Review Letter to TW Networker Mike TW’s Daily Show: Dec 10 Five Years Ago Revisited TW's “Value-Add is Good” “Unnecessary Trauma” Gold is Not American Gold Prices to Zoom Barron’s Review of TW | ||
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| Calling
all financial writers | ||
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Independent Financial Writers GuildJoin Security Traders
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| BUY or SELL Recommendation on GM | |
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General Motors (NYSE: GM) Dec 10 close: $38.93 RECOMMENDATION: ACCUMULATE Strategy: Write GM=OU March 2005 Puts Strike@37.50 Close the GM=XU Dec-04 written Oct 15 @ $1.30 @ $0.05 (which expire on the 17th anyway), for a gain of $1.25 (don’t forget to ring the cash register, Ka-ching!) and add the gain to the $1.55 premium taken in for writing the Mar 37.50 puts (GM=OU). OneChicago Single Stock Futures (GM1C): GM1C H5 (Mar 05) $38.64 Among general reading, here is material I used to make this decision: EasyStock Interactive charts: Monthly, Weekly, Daily, Hourly, 30-Minute data; the Reuters data at Yahoo Finance; the Value Line reports dated Dec 3 and Sep 3, and the TW Weekly buy or sell Ezine dated October 17, 2004. |
| The case for accumulating (the stock): | |
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1. Even though GM is getting their rear-end kicked on the car lot (November sales were down 13.0 percent, and Ford’s were down 7.3 percent), and Wall Street analysts are bad-mouthing the stock, something amazing (LOL) has happened in the stock market. After I wrote up my Accumulation recommendation on GM in my Oct 17 Ezine, the stock has remained exactly flat; it did not crash. Something else amazing happened: I closed my put write @ $1.30 by buying it back at 5 cents. 2. Yes, GM has fallen to 6th largest market cap among auto manufacturers, but it is still the biggest manufacturer. As I wrote in October, with a sluggish economy and high gas pump prices, buyers have been holding back and the Company has had inventory problems. This picture will change. There are five new 2005 models that I think are absolute knockouts. I’ll be shocked if they don’t sell well. 3. The GM market cap is now below $22 billion. Google’s cap, after dropping from $201.60 ($55 billion market cap) has a market cap of 47 billion (@ $171.65). Now the world’s best investment firm has set a target of $217 (market cap = $59+ billion. Well, you guessed it -- Goldman Sachs downgraded GM twice this year, including July 30 when they went from “in-line” to “”under-perform”. Goldman is not alone; the last three Wall Street broker-dealers with a rating change have downgraded. The industry consensus rating has fallen from 2.5 (out of 5.0) Oct 17 to 2.9 this week. Of course, the worse Wall Street claims it is; the better I feel. That’s because (thank you again Ron Sen), when a prominent Wall Street firm tells you Google is worth $59 billion but GM can’t cut it at under $22 billion, they should all be wrapped naked in cellophane so everybody can see their nuts. 4. The PE is well below industry competitors, which are all in the 10 to 11+ range. Analysts seem to be missing the picture that GM has the greatest earnings capacity in the industry. I have adjusted my 2004 earnings estimate of $6.70 down to $6.40, so the stock is trading at a PE (almost its ttm) of just 6.1. Other than the pension liability issue, this is a financially strong company. If its assets were adjusted to replacement cost (or selling value of its real property), the balance sheet would be that much stronger. 5. The stock is fairly priced today, but is well positioned for the next three years as the global economy recovers. My EPS, PE and Target Price estimates for GM are $7.00/8/$56.00 (2005), $7.70/10/$77.00 (2006) and $8.50/11/$93.50 (2007). With my accumulation target of $35.00 on GM (which is the Mar-05 37.50p strike enhanced by premium income of $1.55 plus the gain on the Dec put write of $1.25 less say $0.30 costs), my price targets of $56 (+60%) by year-end 2005; $77 (+120%) by year-end 2006; and $93.50 (+167%) by year-end 2007 are reasonable, yet notable. Very few components of the Dow 30 will perform that well. 6. Price to Sales and Price to Book is by far the best amongst its major competitors. 7. The Dividend yield of 5.22% is by far the best in the industry and the $2.00 annual dividend is well protected. 8. Technical indicators (RSI, STO and MACD) are interesting, but not remarkable because Wall Street is depressing the price. 9. The Short % of Float (9.15% at Nov-08) is a hugely bearish sentiment, and plays right into my contrarian strategy. |
| The case against accumulating (the stock): | |
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1. The November sales results (-13.7 percent) show the challenges GM and the whole auto industry are facing. |
| Trader Wizard's expectation for this trade: | |
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| Trader Wizard "buy or sell" Ezine Archive: | |
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