Sunday, August 21, 2011

"Just because the US government owns 26% of the stock, it doesn't mean that General Motors is a bad investment! In fact, it is a great buy here."

Dow Jones Industrial Average  10,818  (Down) Week ending 08-19-2011

Some people call it " GM - Government Motors" because the US government provided financing to General Motors (Symbol GM, $22.16) , to help it reorganize and is a holder of 26% of the shares of the stock. I guess the fear hangs out there that the government will liquidate in shares and bring the stock price down. They may as well hold on to the shares at this point. The book value on GM shares right now is $24.86 , higher than the trading price. Revenues through June 30th , 2011 are $112,449. Sales are increasing quarter over quarter for GM.

Earnings for the 2011 year ending December 31 are projected at $4.21 per share. For 2012 they are projecting $4.54 per share.  That is a forward PE of 4.88 for 2012 for a company which huge revenues and good earnings. Other typical industrial companies with this type of revenues and earnings trade in the 60-80 a share range! This stock is at $22.16. So what gives?  The share price is down 40% YTD.  Even a blind monkey throwing a dart could get this one right. This company has almost 33 Billion in cash and short term investments.  BUY GM,  with a capital B.

Some other names I like here are Union Pacific Corp. (Symbol UNP, $85.69). When all else fails you can always buy a railroad that runs east-west and transports coal for electricity. UNP has a one year earnings growth rate of over 20%.  Nothing but earnings upside surprises here. The stock is up 15% year to date.

Don't forget about Mastercard (Symbol MA, $300.16). It was one of my Top ten picks at the beginning of the year. Even after the large sell off we have had the stock is still up 45.45% Year to date. I like it and Warren Buffett likes it and owns it too.

I also started looking at the stocks related to real estate this week which I believe could provide some good value picks here. One stock that got my attention in that area is Annaly Capital Management (Symbol NLY, $17.79). This stock is showing  a 14.61% dividend right now and have decent earnings of $2.86 a share and a PE of 6. This is a "pay you while you wait" for the real estate market to make a slight turn. You will need to be patient with this one.                                                                                                                                                                 
Whatever you do, move slowly in smaller increments in whatever you purchase here, because it may be at an even better price next week.

If Chicken Little is right, and the "Sky is Falling", that will be a better strategy in the long run for you.

 Lets see if 10,800 on the Dow holds support here and turns around this week.



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