Investing Blog

I’ll admit I’ve been less than correct on Ford, I liked it at $6, loved it for pennies but I’ve yet to pull the trigger on the stock. I had though that if any of the Big Three were to survive it would be Ford, it pulled profits recently, had enough cash and credit to weather the storm and now it looks like its two domestic competitors are about to bite the dust.

You can already write off GM, its done, the administration has its hand in the inner workings of the company and that alone should be GM’s suicide note. The company is broke in so many ways and its UAW workforce will continue to drive it to mere shambles compared to what it used to be.

On the other side, Chrysler looks better in the eyes of the government but its in worse fiscal condition than GM. A merger or agreement with Fiat can do little to keep this puppy in business, plus its a private business and unlisted on the stock market so you can practically rule it out from the get go.

The American auto industry could soon be shifted to one remaining company. Were GM and Chrysler to close tomorrow, the prospects for Ford would be excellent.

Ford can’t make it without the other two automakers going bankrupt. Like all companies today its far too over-leveraged, it has too many factories and too many workers and it isn’t quite filling its massive production facilities. Unfortunately for every dollar it has invested in its factories it has in obligations, these companies are LOADED with debt.

Looking forward though there is some hope for Ford, and at this point I’m declaring it an excellent scratch off lottery ticket. January 2011 $2.50 calls are relatively cheap, only $1.35 making $4 the price at which you’re breaking even.

That’s a decent risk, its a ridiculous premium but its a low priced stock that could easily pop to $10-20 per share should GM and Chrysler go under. If you want a bit of a gamble, with an excellent ROI and limited downside, go with the options. Either way you won’t be disappointed.

Investing GM