For General Motors, the news keeps getting worse
Today's Financial News - Posted December 22, 2008
Many Big Three investors thought the worst was behind them. Unfortunately, they are starting the week off on even more bad news. It turns out, if the government gets its way, they may lose their shirt after all.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): The manic-depressive trading activity continues to cause nauseating headaches for the investors brave enough to own shares of the nation’s automakers.
On Friday they celebrated victory in Washington. Today, it looks like the smiles will be short-lived.
It turns out, according to some analysts, shareholder equity could be wiped out if Washington gets its way. Shares of General Motors (NYSE:GM) are down by nearly 20% today thanks to a report from Credit Suisse that says shareholders may suffer as the company restructures.
The analyst that researched the report cut his outlook for the company’s shares to just $1 each, down from $2 per share. That is not the kind of news shareholders were looking to start the week with.
Toyota’s (NYSE:TM) bad news this morning is not helping the situation in Detroit. It slashed its earnings outlook for the second time in less than two months. Now, the company expects its first ever annual loss. Its share price is down by 5% on the news the company will likely lose about $1.7 billion during its fiscal year ending in March.
Pay attention this time
As I said last week, this is not the time to be buying shares of automakers, but it is the perfect time to be buying shares of their suppliers. Companies like BorgWarner (NYSE:BWA), American Axle (NYSE:AXL) and Tenneco (NYSE:TEN) are all seeing cuts to their valuations on the recent negative news. It is creating a prime buying opportunity.
Just because Ford (NYSE:F), General Motors and Chrysler are forced to make concessions does not mean their suppliers will. In fact, the supply chain will be the chief benefactor of the bailout. UAW will lose power. Detroit bondholders will certainly suffer. And equity owners will lose even more money. But suppliers will be the first (maybe second after Uncle Sam) to get their money.
Do not try to speculate on the future of the Big Three. Once the government gets involved, logic and reasoning get tossed out the window. Forget about trying to pet the sharks and invest in the remoras that feed off their supply chain.
One of my favorites is Tenneco. With its solid Walker brand and the company’s focus on emissions technology, it will be a long-term winner as the industry cycles back to a stronger state. It is taking healthy steps to deal with its debt load and will emerge as a winner in 2009.
Start doing your research and take advantage of today’s low prices. Little Johnny’s toys are not the only things selling for a deep discount.
Next Article: The New “Trickle-down” Economics
Be the first to leave a reply.
Your comments are welcome
Follow TFN via RSS or Twitter |
 |
 |
 |
Advertisement
Latest Headlines
- The Big Picture for Sinobiopharma, Inc. (SNBP)
- Beazer Homes USA, Inc. (BZH) and Hovnanian Enterprises, Inc. (HOV) up despite horrid housing news
- The FDA catalyst: 2010 moves in MannKind (MNKD), Roche Holding (RHHBY), Acorda Therapeutics (ACOR) show it still works!
- Steepest drop since Feb. 2009: Here we go again!
- Is the silver run over? Coeur d’Alene Mines (CDE), Silver Wheaton (SLW), Alto Group (ALTO), Hecla Mining (HL), Endeavour Silver (EXK) close down