GM: General Motors, symbol of the disaster of “Old Economy” in the simple times when proletarians were just proletarians and not yet “democratic investors” like us. May 3, 2006Posted by deminvest in Blogroll, Dogs of the Dow, investment, Single stocks, Social investing, stocks.
GM: Seems to me a symbol: there was a time when, in western developed world, capitalists were masters and we, the people, had a clear view of who was our enemy. They were plain old bad rich men. We were the workers, we had to build unions to protect our rights and we had to fight great epical battles in month long bloody strikes to obtain better conditions of life and a wage which was abut enough to raise a family.
Now GM's huge troubles are the symbol of the end of those simple times. Who are our enemies now? Maybe third world workers who will work for $3 a day? Maybe the same Unions who protected us in the good days, and who are maybe not willing to give up something to save the ill giant which is likely to fall dragging down with itself hundred of thousands of workers?
I got GM at 29.4 about a year ago attracted by the interesting dividend yield that it offered and that later has been reduced to contain losses. Fortunately, after getting GM, its price soared and I had just the time to sell part of it to get back the money invested. Now my 5 GM stock is free and worth 22.35 only. I keep them, mainly to live in first person the epic adventures of this huge ill giant.
Let's give a look to GM as a stock (NOT) to buy.
GM does not have a P/E, because it does not have earnings. GM has only losses.
GM still has a yearly dividend of $1 per share and a dividend Yield of 4.40%, but who knows if next year it will be paid.
General Motors has losses of about 10 B$ on sales of about 200 B$ which is about 5%, not such a big deal. The real big deal is huge GM’s debt of about 277 B$ which are classified as junk bonds and thus bear very high interest rate.
The only thing that makes GM interesting is its ridiculously low price on Sales:
Price/Sales = 0.07 GM is very inexpensive, consider for instance that Microsoft (MSFT) has Price/Sales = 6. It is about 100 times more expensive!
But still if you look ad another USA car giant which is not in great health, Ford (F), you can see that they have the same Price/Sales ratio: 0.07, but they are not reporting losses and they have a smaller debt.
So let’s stay away from GM. If I really will come to miss too much car based old economy and I will be looking for a bargain, I think I will get some Ford (F).