Randall Forsyth pens the "Up and Down Wall Street" column in this week's Barron's, and gets around (scroll down) to General Motors (GM/NYSE). He notes that GM stock has fallen about one-third since Barron's recommended the shares in a cover story earlier this month. For those of us holding even longer, the performance is even worse -- GM stock is down about 70% from its peak of $43.20 last fall.
When I launched this blog in 2005 and recommended GM common, Barron's was cautious on the stock but liked GM bonds. Forsyth writes in the current issue that they are still favorable on the common stock, yet once again offers up the bonds for consideration:
For instance, the 7.25% senior notes due Feb. 15, 2052 (RGM), closed Friday at $12.30, a nickel more than half their par value of $25. At that price, the notes pay a current yield of 14.74% and a yield to maturity of 14.78%, reflecting their junk rating of single-B by S&P.
GM's convertibles provide both double-digit current yields and the potential of following in the wake of a recovery of the common. In the meantime, the 6.25% convert due July 15, 2033 (GPM), currently yields 11.78% and has a yield to maturity of 12.39%. In addition, investors have a put option allowing them to redeem them in 2018. Exercising that option would result in a yield to the put date of 15.92%, although GM then can redeem the converts either in cash or stock.
In either case, these debt securities would seem to provide a lower-risk way to play the revival of the auto maker. Of course, the common would give a bigger bang.
Exemplifying either patience and bravery, or foolishness and stupidity, I'm holding my entire stake and expecting the bigger bang. But it could end up a complete blow up. So do your due diligence before joining the Barron's editors and me in this investment vehicle.