Kyle Bass likes investing in General Motors Company (NYSE:GM) on a drawdown, when the best values are found.
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Buying GM when there is blood on the streets
As General Motors Company (NYSE:GM) investors may think there is “blood in the water” as the company faces defined political and legal challenges in light of knowledge it had of defective products that ultimately led to 13 deaths, Bass sees opportunity. “The investment case is unbelievable with GM,” Bass said in a CNBC interview. “The company has $30 billion in cash on balance sheet,” he said, sounding and even looking like Gordon Gekko. “The company is trading at 2x EBIDA (earnings) and has 3.7% dividend yield.” Normally automotive companies trade near 4 to 5 times EBIDA and have a dividend yield near 2%, the fund manager noted.
Firestorm of criticism on Capitol Hill
In Congress, General Motors faced a wave of populist angst for apparently knowing a defect in the car existed and not correcting it – when the corrective part might have cost less than $5. While Congress was bi-partisan in its critique of the firm, Bass said the company will do right by their customers and in six months this issue will have passed.
“The question is why isn’t anyone defending General Motors Company (NYSE:GM), and I think neither side of the aisle can gain political capital by defending them,” Mr. Bass said in an interview. “They’ve been indicted in the public court of opinion. If you’re talking about true legal liability, it is de minimis.”
And here is the key. With defined downside legal risk and the company seemingly facing a public relations nightmare, Bass thinks newly minted CEO Mary Barra is taking the right steps to manage the crisis – and boosting the 8 million shares Bass owns.