Stocks and buying them

[Rusty Shackleford]

With General Motors now trading below $10 per share, what happens if you buy some of their stock and they go bankrupt?

I was considering buying some and hanging onto it a while, but not if I lose out what I pay to buy the stock if they go bankrupt.

 

[Clerk Typist]

What happens is you almost surely lose your entire investment. Stockholders are way down on the list of creditors, if they're on there at all.
I own some GM, bought at $25 some years back, and await a rebound they may never happen. Meanwhile, the dividend is $1 a year, so 25 cents per quarter per share. With a $10 stock, that's a 10 percent yield, but GM cut its dividend in half a while back, and I wouldn't be surprised if it happens again. After all, it did lose what, $38 billion last year?
Buy a share of Google instead.

 

[poindexter]

Don't buy GM at $10 - that is what's called catching a falling knife -- you can get hurt.

Take a look at the unfunded liabilities of that company - they should be paying you to take a share.

 

[trifectarich]

Yep, you lose everything if you're holding stock of a company that goes kaput. If you want to buy a stock now and hold it for a couple of years, when (we all hope) we should be on better financial footing, there are a ton of good values, just loads of good companies whose stock has been hammered.

 

[maberger]

anyone want to add any suggestions?

my eye right now is on Markel (MKL), Cemex (CX) and Potash (POT), and also American Express (AXP).

 

[waterytart]

Rusty, there's a piece of wisdom that's been cited on Wall Street forever, and resurfaces whenever some company which will attract investor attention suffers a severe decline in its stock price.

Q. Hey, I should pick up some [Consolidated Fuzz]. It's down to $6 a share. How much can I lose?

A. 100%

 

[Ben_Hecht]

I know a guy who was able to retire comfortably after buying Chrysler at $2 during their previous crisis, thirty or so years ago.

But that was when there was one more "dead cat" bounce to be had.

That may not be in the cards, this time.

 

[trifectarich]

It's no secret the financials have taken a terrible beating so far this year. But if we get a grip on gas prices, which will allow people to get out and travel, spend and save, the U.S. economy will snap out of this funk.

There are some companies whose shares are selling at attractive prices: American Express (down from the 60s to around 40), Wells Fargo (from the mid-30s to the mid- or high 20s), even Wachovia, which, at its current price, could be a takeover target.

Do your homework, and good luck.

 

[poindexter]

These financial stocks, just b/c they lost 50%, do not look attractive to me. Especially POS like Wachovia - they have a ton of ****ty loans on their books - horrible loan products like Pick A Pay - which will start to reset this year and next. These are different from subprime, but cut from the same turd. Neg am loans which are going to go belly up.

The A-holes at Wachovia finally decided to quit selling these loans 2 days ago. Wait until the **** hits the fan with these loans.
http://www.bizjournals.com/southflorida/stories/2008/06/30/daily20.html

Buyer beware with Wachovia. Wells Fargo thought they were smart buying Golden West, its nothing but a portfolio of ****ty loans.

 

[trifectarich]

These financial stocks, just b/c they lost 50%, do not look attractive to me. Especially POS like Wachovia - they have a ton of ****ty loans on their books - horrible loan products like Pick A Pay - which will start to reset this year and next. These are different from subprime, but cut from the same turd. Neg am loans which are going to go belly up.


The A-holes at Wachovia finally decided to quit selling these loans 2 days ago. Wait until the **** hits the fan with these loans.
http://www.bizjournals.com/southflorida/stories/2008/06/30/daily20.html

Buyer beware with Wachovia. Wells Fargo thought they were smart buying Golden West, its nothing but a portfolio of ****ty loans.

I know Wachovia made a bunch of stupid moves and it's paying dearly right now, but it's a huge player in this sector and I don't think this company is going bankrupt. I know it's not going to turn things around in a couple of months; it might take another six months or more, but for a stock you want to hold for a couple of years, it's tempting to me at this price. And I do not at all discount the prospect that it could be taken over by someone like Chase.

 

[The Big Ragu]

Don't touch GM. They need to somehow come up with $15 billion to fund operations for the next two years. In this environment, how is that going to be possible? The most likely scenario is that a garage sale starts soon. They need money and they have no way to raise it. They have carried a junk bond rating for several years now. A few months ago, Moody's downgraded their bonds from stable to negative. Moody's rating basically suggests that there is more than a 25 percent chance that GM defaults on their debt within the next four years. Given that, they can't just go out and issue more debt right now, never mind the yield they'd have to promise to even begin to entice bond investors. They have bonds already that are paying a 15 percent yield that are trading at around 57 cents on the dollar. That means that people expect the company to go bankrupt. If it steps into the junk bond market and tries to raise $15 billion more, the finance costs would be ridiculous. No one would even underwrite that debt. So unless some shining knight in armor comes in willing to lend GM a boatload of money in the private equity market, this is just ugly. There's cheap... and there's soon-to-be worthless. When the garage sale begins, someone will get paid. It won't be the guy holding the common stock certificate.

 

[waterytart]

My guess is GM's not going bankrupt. But I don't see a snapback -- just staggering along. In other words, dead money. And nothing says it can't drop a couple more points before the plateau.

 

[ScribePharisee]

I asked this on another thread, but has anyone dropped a chunk of their 401K in European market funds? Is that in general good right now? Short term, long term?

 

[Evil ... Thy name is Orville Redenbacher!!]

With General Motors now trading below $10 per share, what happens if you buy some of their stock and they go bankrupt?

I was considering buying some and hanging onto it a while, but not if I lose out what I pay to buy the stock if they go bankrupt.

As already posted on here: you will lose it all!

Take it from a guy who bought K-Mart and Worldcom/MCI. I was banking on Worldcom getting a bailout.

 

[2muchcoffeeman]

My guess is GM's not going bankrupt. But I don't see a snapback -- just staggering along. In other words, dead money. And nothing says it can't drop a couple more points before the plateau.

GM will declare Chapter 11 and reorganize at some point.

Regarding that stock's value, consider my mistake. A few years ago I had a chance to buy 100 shares of stock in a computer company at just over $7 per share. At the time, most pundits were dead certain that computer company's time had passed and it was going to go under in a few years, so I passed.

Apple Computer (AAPL) is now worth over $170 per share. :-\

 

[Ben_Hecht]

My guess is GM's not going bankrupt. But I don't see a snapback -- just staggering along. In other words, dead money. And nothing says it can't drop a couple more points before the plateau.

GM will declare Chapter 11 and reorganize at some point.

Regarding that stock's value, consider my mistake. A few years ago I had a chance to buy 100 shares of stock in a computer company at just over $7 per share. At the time, most pundits were dead certain that computer company's time had passed and it was going to go under in a few years, so I passed.

Apple Computer (AAPL) is now worth over $170 per share. :-\

Who knew? It wasn't the computers that bailed them out.

 

[Birdscribe]

My guess is GM's not going bankrupt. But I don't see a snapback -- just staggering along. In other words, dead money. And nothing says it can't drop a couple more points before the plateau.

GM isn't going bankrupt. Their overseas holdings -- where they are making money hand over fist -- will ensure that.

That said, guess what is going to be used as collateral for whatever financial lifeline GM is in the process of lining up? Ragu's dead-on here; I wouldn't touch GM with your money.

Regarding the financials, there are two I'd consider. The first is US Bank, which got beat up along with every other bank, despite the fact it doesn't have much -- if any -- subprime debt. It's trading in the high 20s, pays a good dividend and is more solid than some of its larger rivals.

And yes, I own this in my Roth IRA.

The second is more speculative: Citigroup. There's a reason its trading in the mid-teens now -- things are a mess there and everyone's waiting for the other shoe to drop.

But unlike the car manufacturers, Citi isn't going under anytime in our lifetime. There's mongo assets there and Vikram Pandit, the new CEO, actually seems like he has a clue.

 

[Birdscribe]

anyone want to add any suggestions?

my eye right now is on Markel (MKL), Cemex (CX) and Potash (POT), and also American Express (AXP).

I've been following CX for a while. I like that and am seriously considering it for my IRA.

POT has had a huge run already. I don't know much about MKL and you could do worse -- and better than AmEx in the financials.

 

[playthrough]

The golf guy and Jeopardy champ giving us stock tips. I like it

 

[ScribePharisee]

My guess is GM's not going bankrupt. But I don't see a snapback -- just staggering along. In other words, dead money. And nothing says it can't drop a couple more points before the plateau.

GM isn't going bankrupt. Their overseas holdings -- where they are making money hand over fist -- will ensure that.

That said, guess what is going to be used as collateral for whatever financial lifeline GM is in the process of lining up? Ragu's dead-on here; I wouldn't touch GM with your money.

Regarding the financials, there are two I'd consider. The first is US Bank, which got beat up along with every other bank, despite the fact it doesn't have much -- if any -- subprime debt. It's trading in the high 20s, pays a good dividend and is more solid than some of its larger rivals.

And yes, I own this in my Roth IRA.

The second is more speculative: Citigroup. There's a reason its trading in the mid-teens now -- things are a mess there and everyone's waiting for the other shoe to drop.

But unlike the car manufacturers, Citi isn't going under anytime in our lifetime. There's mongo assets there and Vikram Pandit, the new CEO, actually seems like he has a clue.

I just got back from a meeting with my broker. He is moving **** away from GM and has been doing so all week. That's good enough for me.