19 August 2010

How to Play the GM IPO and the Auto Industry


General Motors filed for an initial public offering of stock on Wednesday, clearing a key hurdle toward repaying taxpayers for a controversial bailout just over a year after its bankruptcy.

The initial filing with U.S. securities regulators did not say how many shares would be sold or give an expected price range for what will likely be one of the biggest IPOs ever. It filed for an IPO of up to $100 million. That does not represent the full amount that GM hopes to raise, people familiar with the situation have told Reuters. GM could raise up to $20 billion in its IPO, the people said.

The automaker said it planned to list the shares on the New York Stock Exchange and the Toronto Stock Exchange. Trading in GM shares is expected to start between late October and the U.S. Thanksgiving holiday, which is the fourth Thursday in November, according to people involved in the process.

So what does this mean for investors?

Guy Adami, managing director at Drakon Capital, likes the GM IPO for the auto industry. He recommends looking at BorgWarner [BWA  47.07  ---  UNCH  (0)   ], which is an auto parts manufacturer based in Auburn, Hills, Mich. The stock is pushing against a 52-week high, Adami said. UBS put it on a conviction buy list. He thinks valuations are "reasonable" and being as we're in a benign tape, he thinks BWA is the way to go.

Buy Ford Motor Co. [F  12.20  ---  UNCH  (0)   ] if the share price drops to $11.50, said Pete Najarian, co-founder of optionMONSTER.com. He thinks that could happen because there is "a lot of appetite" for the GM deal. Ford's share price could fall if investors leave for GM.

What Ford has going for it that GM doesn't, said Joe Terranova, chief market strategist at Vitrus Investment Partners, is Alan R. Mulally. Adami agreed and praised the 61-year-old Ford executive.

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