Kerkorian suffers from a change of heart
Not just but 2 years ago was Kirk Kerkorian (the Las Vegas real estate billionaire) heavily entangled in the General Motors corporation. Now after Ford’s profitability, the investor is chasing a serious stake in Ford. Kerkorian dumped GM in favor of more investment into his Las Vegas properties, neither of which have proven to be a good investment. GM is still suffering from large pension payments and Las Vegas has cooled with the economy.
His latest investment in Ford does raise some eyebrows. After holding as much as 9.9% in GM Kerkorian started taking over the board, trying to push his own agenda within the company. Now that he’s starting to invest in Ford, many worry that he could try again to push his weight to force the company into change. He’s willing to buy another 20 Million shares with a value of $8.50 per share, that’s a hefty premium even over today’s closing price of $8.21. Interestingly enough, he pulled another stunt of paying $29 per share for GM even when the company was selling below $25 per share. His advice is less than accurate.
Kerkorian had all kinds of new proposals for GM once he launched a major investment. He suggested that GM form an alliance with Nissan and Renault SA, which never amounted to anything. He’s also made a bid for Chrysler with much the same result. Las Vegas comes much easier than automotive it seems.
This does bring interesting news to shareholders. Selling out at $8.50 per share looks great compared to the low of near $5 per share just this March. That represents a $3.50 premium or a 70% return from the market bottom. At any rate, Ford looks like a much better investment with a surprising $100 Million profit the first quarter.
Ford stock promises to be volatile for the next few weeks. A recent trendline propelled the stock from its $5 low to the current price of $8.21. Resistance promises to send it back down to a modest range and the RSI is looking bearish as well. A true break through $8.50 with a retest of the current resistance as support would give much to the validity of a market value of $18 Billion especially with earnings of just $400 Million annualized. Considering that $100 Million per quarter is sustainable, Ford still trades at a multiple of 45, a bit too much for a stock nearly escaping bankruptcy. I don’t think the market can sustain such vertical rise in share price, I’m looking back towards $7 per share.
