Lately, General Motors has grabbed headlines across the web and in every major business section of the newspaper. Does anyone smell a potential Sears Holdings (SHLD) play again?
The similarities: a company’s stock goes to zero, enters bankruptcy, restructures under new ownership, then files for a new IPO, cleaner balance sheet, new IPO stock rises. Same gimmick, just a different day and company.
Stocks can fool you and they can reward you. The real question is what will happen following the GM IPO? Will animal spirits and an iconic American brand trump all other financial assessments of GM?
Instead of trying to predict what will happen, I suggest looking no further than a rock solid company in Ford Motors (F).
On Wednesday, Ford reported sales in October up 19% vs. the same month last year for a total of 157,935 vehicles. 2010 year-to-date sales are up 21% vs. 2009. Ford is on pace to gain market share for the second year in a row, an achievement not seen since 1993!
Keep in mind Ford’s success is running on bailout-free fuel (unlike General Motors).
In contrast to Ford, sales at GM were up only 3.5%, well below the average industry mark where sales are traditionally expected to be up about double-digits for October for auto companies.
GM plans to sell 365 million common shares, or 24% of its common stock, at $26 to $29 each, raising about $10 billion. Initially, the company reported pricing the stock in the low $20s for the IPO, but has since seen demand increase for shares and thus an increase in the IPO stock price. With the GM IPO imminent and a tremendous amount of media hype behind the big event, Ford is the dark horse sleeper stock in the shadow of the GM IPO.
Based on the technical chart below, shares of Ford were fetching $10 per share at the start of July — a low point for the share price. Since July 4th weekend and the publishing of the Wall St. Cheat Sheet July issue, Ford shares are up over 50% in just 4 months. With the foresight to see investor sentiment improve ahead of this month’s GM IPO, we also saw general interest in bailout-free Ford improving too. It seems the engines could only be rumbling in 3rd gear for Ford as shares may possibly accelerate to 5th gear with the unfolding event of the GM IPO just around the corner.
On a year-to-date basis, shares of Ford are up 58%.
Disclosure: F was a Wall St. Cheat Sheet Premium Watchlist Pick in the July Issue.