Cramer's Call on GM, Ford Convertibles
Tuesday night Jim said the way to play the auto bailout is with the preferred stock of General Motors and Ford. We usually don't talk about preferred stock or convertible preferreds because they're arcane and complicated, but that doesn't mean they're not good investments.
The best way to think of preferred stock is as a sort of cross between a stock and bond. They're essentially special shares of a company that pay much higher dividends than the common stock. The great thing about preferreds is that if the common tanks – as long as the company doesn't go bankrupt – you can hold the preferred shares until their bond-like maturity date and get back the price at which the preferred was issued.
Jim recommended the 6.25% coupon 2033 convertible preferred as a way to play General Motors, and the ticker for that is GPM. Convertible preferred shares are a little different from regular preferreds in that they allow you to convert your shares of preferred stock into a fixed amount of common stock. That way if the common soars, you can make a pretty penny off the conversion. Of course, when we're talking about General Motors it's very unlikely that the common will come back to a point where you'd have any upside.
While we may not spend much time talking about preferreds and convertible preferreds, you should definitely keep your eyes out for companies that are issuing this kind of paper because the yields are fabulous, and this is a market where dividends are king.
On a somewhat related point, here's one more reason the government should let Chrysler fend for itself as it bails out the other two members of the big three: Daimler – that's Mercedes Benz – still owns close to 20% of Chrysler. So we'd not just be bailing out Cerberus, a big fat private equity fund, we'd also be bailing out a foreign automaker. A little disgraceful, don't you think?
Cliff Mason is the Senior Writer of CNBC's Mad Money w/Jim Cramer, and has been that program's primary writer, in cooperation with and under the supervision of Jim Cramer, since he began at CNBC as an intern during the summer of 2005. Mason was the author of a column at TheStreet.com during 2007, which he describes as "hilarious, if short-lived." He graduated from Harvard College in 2007. It was at Harvard that Mason learned to multi-task, mastering the art of seeming to pay attention to professors while writing scripts for Mad Money. Mason has co-written two books with Jim Cramer: Jim Cramer's Mad Money: Watch TV, Get Richand Stay Mad For Life: Get Rich, Stay Rich (Make Your Kids Even Richer). He is 100% responsible for any parts of either book that you did not like.
Mason has also had a fruitful relationship with Jim Cramer as his nephew for the last 23 years and will hopefully continue to hold that position for many more as long as he doesn't do anything to get himself kicked out of the family.
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