The "Follow Up" column (subscription required) in this week's Barron's leads with the headline, "GM Stock Looks Rich."
The thrust of the column is that Barron's editors believe GM's debt is a better bet than the company's stock. The publication said the same thing in its March 28 issue. This week's follow-up piece was restating that claim -- even though the performance of GM stock since then has trounced that of GM bonds.
They show a table listing the difference. Since March 28, GM stock has shot up 26.3% and offers a current yield of 5.5%. The 4 GM bonds listed have risen anywhere from 1.3% to 5.1% and offer yields of 7% to 8.7%.
CONTROLLED GREED was launched in late April. GM was mentioned here on April 29 at $26.75 and closed last Friday at $36.74. That's a gain of approximately 37%. (I've stated several times that I first purchased GM stock before this site began and that my average cost is in the low $30s.)
Will GM's bonds turn out to be a better investment than its common stock? I don't think so, yet anything is possible. But I find the behavior of Southeastern Asset Management noteworthy.
As you know, Southeastern manages the Longleaf Partners series of funds. When the headlines were filled with stories about Kirk Kerkorian buying GM stock, the more interesting buying activity (for me) turned out to be that Southeastern and Brandes Investment Management were aggressively adding to their positions.
And in the matter of deciding between buying GM stock or its bonds, I can't help but notice that value pros like Mason Hawkins and Staley Cates bought the stock.
This may be comparing apples and oranges, but this is interesting:
Entering 2005, Southeastern owned huge positions in GM stock and Level 3 Communications stock. Both companies announced lousy results earlier this year. Southeastern's response was to add to its GM stock -- but not its Level 3 position. Instead, it added to Level 3 by way of a private convertible bond placement.
Admittedly, the Level 3 convertible bonds yield 10%, are due 2011, and aren't available to the general investing public. Perhaps that's enough to make them more attractive than the common. And, heck, for all I know Southeastern has been aggressively buying GM's bonds. My hunch, though, is that they would have loaded up on the bonds last Spring if they were going to do so.
I've said repeatedly, GM could turn out to be a lousy stock purchase. But it's had a nice run so far and has become my single largest position. I'm holding and if that changes -- you'll read about it here.
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