Warning: Government Overhang Remains in General Motors (GM)
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Price: $76.96 -0.49%
Overall Analyst Rating:
SELL (= Flat)
Dividend Yield: 0.9%
EPS Growth %: +26.1%
Overall Analyst Rating:
SELL (= Flat)
Dividend Yield: 0.9%
EPS Growth %: +26.1%
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Shares of General Motors Company (NYSE: GM) are up 9 percent in early trading Wednesday following news the company will be buying back 200 million shares of the U.S. Department of the Treasury's 500.1 million shares of GM common stock. While clearly a psychological positive, investors should be warned that there remains a government overhang in the stock that will likely hurt near-term share performance.
With today's news it is important to note that the Treasury plans to dump the remaining 300.1 million shares of GM through various means in an orderly fashion within the next 12-15 months, subject to market conditions. Treasury intends to begin its disposition of those 300.1 million common shares as soon as January 2013 pursuant to a pre-arranged written trading plan. The manner, amount, and timing of the sales under the plan are dependent upon a number of factors.
Like it our not, the 300.1 million remaining GM shares will be an overhang in the stock.
With an average daily volume of 9 million shares in GM, it would take the Treasury more than a month and a half if they were the only seller in the market. Of course, the government wouldn't do this and may stick to dumping around 10% of the daily volume. So if the government sold 900K shares a day, or 10% of the daily volume, this would equate to 4.5 million shares per week or 234 million shares per year.
Based on this, it would take well over a year for the Treasury to completely exit its remaining 300 million share position.
Savvy investors should look back at the case of when the government sold its Citigroup (NYSE: C) stock in a similar fashion in 2010. Even though the government finished selling its stock in Citigroup nearly two years ago, the stock price today is still lower then it was at that time the government was selling. All the time the government was selling the stock could gain no traction as the massive seller was in the market.
This could all change for GM if Treasury could find a few buyers for the large slug of stock and get it off the market fast. However, for now, today's big jump in the stock could be misplaced.
With today's news it is important to note that the Treasury plans to dump the remaining 300.1 million shares of GM through various means in an orderly fashion within the next 12-15 months, subject to market conditions. Treasury intends to begin its disposition of those 300.1 million common shares as soon as January 2013 pursuant to a pre-arranged written trading plan. The manner, amount, and timing of the sales under the plan are dependent upon a number of factors.
Like it our not, the 300.1 million remaining GM shares will be an overhang in the stock.
With an average daily volume of 9 million shares in GM, it would take the Treasury more than a month and a half if they were the only seller in the market. Of course, the government wouldn't do this and may stick to dumping around 10% of the daily volume. So if the government sold 900K shares a day, or 10% of the daily volume, this would equate to 4.5 million shares per week or 234 million shares per year.
Based on this, it would take well over a year for the Treasury to completely exit its remaining 300 million share position.
Savvy investors should look back at the case of when the government sold its Citigroup (NYSE: C) stock in a similar fashion in 2010. Even though the government finished selling its stock in Citigroup nearly two years ago, the stock price today is still lower then it was at that time the government was selling. All the time the government was selling the stock could gain no traction as the massive seller was in the market.
This could all change for GM if Treasury could find a few buyers for the large slug of stock and get it off the market fast. However, for now, today's big jump in the stock could be misplaced.
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