Kyle Bass Investing in GM When Company Is Down, But Not Out

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Kyle Bass likes investing in General Motors Company (NYSE:GM) on a drawdown, when the best values are found.

Also Read: Kyle Bass Notes Japan’s Debt Crisis Crash

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.



About the Author

Mark Melin
Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com