General Motors Corporation (GM)

(A Top Pick Aug 29/13. Up 0.32%.) Has traded around this one. He tends to move in and out of the stock using options. Thinks the recall issue will be relatively temporary. Likes the cash return possibility as we move into 2015-2016. There will be a bigger dividend and a big buy back. They are not going to pay back taxes for over a decade. Trading around 2X EBITDA, very cheap.

If he were to own a car company, he would probably gravitate towards Ford (F-N). The news on General Motors is in the paper every day. They have sort of set the stage for a perpetual high level of recalls because, from a reputation standpoint, the worst thing that could happen is to have another situation like they did with ignition switches.

(Market Call Minute) Not interested. US autos are almost back to their previous highs.

In spite of all the recalls, people are going into dealerships with their recalled cars, and end up buying or leasing new cars with no money down and low interest rates. Sales are booming. Valuation is quite cheap. Have potential earnings of $5 a share next year. 10X earnings is a fair valuation. Good exposure to world markets in China. Good dividend of 3.18%.

Has never owned car companies as they are very capital intensive. They have a habit of having huge recalls and losses. It’s a difficult market and a difficult business. There have been a number of years now of fairly strong car sales and it is a cyclical business.

Has been a challenged stock this year. More recalls every day, but he thinks they are getting it under control. There is significant upside but you have to be patient. He owns Ford as it has a better growth prospect. GM is in the right space. You will do quite well over time.

You can’t get any more negative than this one is right now. Every day there is a recall. His model prices $40.98, and 18%-19% upside. There is lots of value here. The China market is probably keeping this company going. He would buy a half position, and possibly wait for the 2^nd quarter balance sheet. 3.47% dividend yield. You want to buy large-cap stocks when it is “ugly healthcare” for them.

If you own, you have done pretty well with this since the government sold their stake. The current pullback could be a buying opportunity. At the same time, we don’t know how many more recalls are to come. Sentiment is not very positive towards this company at the present time, and we don’t know what size liability there will be.

Not as an attractive looking chart as Ford (F-N). Chart is not showing any signs of consolidation yet. After a stock has been moving down, he wants to see it start to consolidate and stop making lower highs and lower lows. This is still in a downtrend.

Chart is showing a little of a head and shoulders top, but the pattern doesn’t always mean it is going to come to pass. The potential breakdown is at around the $32-$33 range. The present price, to him, would make it a really good risk/reward from the standpoint that you could Buy it here, sort of break down below $32, and give yourself a few percentage points. Take 3% minus $32 and that would give you a pretty good place to define Stops. He would take a punt and if it breaks $32 you know there are some bigger issues. The recall stuff has already been factored in.

He is very pleased with all the recalls they are having. At the end of the day, they will get past this. If the indication of positive sales is as they were in March/April, they’ll get past this. Valuation is extremely cheap. There is a potential for them to earn $5 a share in 2015. If that happens, this is a $50 stock. There is downside protection with the dividend. Generating a lot of free cash flow, but unfortunately the balance sheet is getting eaten up by all these charges. The good news is that when they have recalls, not all the cars that are recalled are available or in use.

The whole recall, which has hit Ford (F-N) as well, has been an overhang on auto stocks. Auto demand has fallen back to more normal levels. Would prefer investing in companies that sell into that sector instead. US government has sold their holdings at a loss.

Auto group is one he likes as a sector, but prefers parts companies and sub assemblers. It has consolidated over the next few months. He is still not there technically. Numbers out today were a little bit better.

Would probably shy away from this because of the recent negative publicity. Execution from a management standpoint is a very important part of the fortunes of a company because it affects the valuation. How many dollars are we willing to pay for each dollar of earnings, revenue or cash flow. Ford (F-N) in this space is an interesting situation. Their European operations are improving and they expect overall unit growth is going to be around 3%. Good valuation and good management.

Thinks they can earn about $5 in a year, making them 8.5 times earnings. Thinks management group is very impressive. Notwithstanding issue on recalls. Europe is turning the corner, China is doing very well and US has strong numbers.