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How to Play the GM IPO and the Auto Industry

Wednesday, 18 Aug 2010 | 7:17 PM ET

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.

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So what does this mean for investors?

Instant Insights with the Fast Money traders

Guy Adami, managing director at Drakon Capital, likes the GM IPO for the auto industry. He recommends looking at BorgWarner , 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. 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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A PLAY ON THE CONSUMER

For a play on the consumer, Drakon Capital managing director Guy Adami recommends Visa , so long as it stays above $70 a share. The valuation is "fair" and he would stay long.

Joe Terranova, chief market strategist at Vitrus Investment Partners, also likes Visa's valuation. He's thinks investors should also take a look at American Express because it has exposure to the affulent consumer. The stock is currently an opportunity because it's trading at below $42 a share, he said.

Both Adami and Pete Najarian, co-founder of optionMONSTER.com, like Mastercard , as well.

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BONDS IN BUBBLE?

Jeremy Siegel, a professor at Wharton, wrote an op-ed in The Wall Street Journal Wednesday, which said investors may lose more in the bursting bond bubble than they did in the tech bubble of the late 1990s.

Gary Shilling, president of A. Gary Shilling & Co., has often debated Siegel over investing in stocks versus bonds, so we invited him to chat with us on Wednesday's Fast Money.

Watch the video to see the full conversation.


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Trader disclosures for Aug. 18, 2010:

Joe Terranova
Terranova owns (AKAM)
Terranova owns (V)
Terranova owns (NRG)
Terranova owns (POT)
Terranova owns (OXY)
Terranova owns (GLD)
Terranova owns (BAX)
Terranova owns (MOS)
Terranova owns (PFE)
Terranova owns (SU)
Terranova owns (XBI)
Terranova owns (GOOG)
Terranova owns (LRCX)
Terranova owns (AXP)
Terranova owns (C)
Terranova owns (GS)
Terranova owns (BMO)
Terranova owns (MSFT)
Terranova owns (QCOM)
Terranova owns (FCX)
Terranova owns (APA)
Terranova owns (PEP)

Terranova is chief market strategist of Virtus Investment Partners, LTD.
Virtus Investment Partners own more than 1% of (ABAX)
Virtus Investment Partners own more than 1% of (ALK)
Virtus Investment Partners own more than 1% of (AMKR)
Virtus Investment Partners own more than 1% of (CASS)
Virtus Investment Partners own more than 1% of (CSVI)
Virtus Investment Partners own more than 1% of (XLY)
Virtus Investment Partners own more than 1% of (XLP)
Virtus Investment Partners own more than 1% of (DRYS)
Virtus Investment Partners own more than 1% of (EXR)
Virtus Investment Partners own more than 1% of (XLI)
Virtus Investment Partners own more than 1% of (IGE)
Virtus Investment Partners own more than 1% of (LDR)
Virtus Investment Partners own more than 1% of (LPHI)
Virtus Investment Partners own more than 1% of (XLB)
Virtus Investment Partners own more than 1% of (MGRC)
Virtus Investment Partners own more than 1% of (NRCI)
Virtus Investment Partners own more than 1% of (DBV)
Virtus Investment Partners own more than 1% of (SUBK)
Virtus Investment Partners own more than 1% of (XLK)
Virtus Investment Partners own more than 1% of (XLU)
Virtus Investment Partners own more than 1% of (WDFC)
Virtus Investment Partners own more than 1% of (YDNT)

Guy Adami
Adami owns (AGU)
Adami owns (BTU)
Adami owns (NUE)
Adami owns (C)
Adami owns (GS)
Adami owns (INTC)
Adami owns (MSFT)
Adami’s wife works at Merck

Karen Finerman
Finerman ‘s firm owns (AAPL)
Finerman and Finerman’s Firm owns (BAC)
Finerman owns (GOOG)
Finerman’s firm owns (GYMB)
Finerman’s firm owns (HPQ)
Finerman’s firm owns (JPM)
Finerman’s firm owns (RIMM)
Finerman’s firm owns (SKS)
Finerman’s firm owns (TGT)

Pete Najarian
Pete Najarian owns (GS) calls
Pete Najarian owns (HPQ) calls
Pete Najarian owns (RIMM) call spreads
Pete Najarian owns (X) calls
Pete Najarian owns (TCK) short calls
Pete Najarian owns (CNI) short callls
Pete Najarian owns (WDC) calls
Pete Najarian owns (STX) calls
Pete Najarian owns (TEVA)

Steve Cortes
Cortes is long (FCX)
Cortes is long the S&P 500
Cortes is long Canadian Dollars
Cortes is long Australian Dollars
Cortes is long Crude oil
Cortes is short (XLF)
Cortes is short the Japanese Yen
Cortes is short the British Pound
Cortes is short U.S. Treasuries

Gary Shilling
Funds managed by Shilling own U.S. Treasuries
Funds managed by Shilling own Eurodollar Futures

Eric Jackson
Jackson is short (JCP)
Jackson is short (DDS)
Jackson is short (SKS)
Jackson is short (JWN)
Jackson is short (BWS)

Ron Shah
***No Disclosures***

Mike Khouw
***No Disclosures***

—Reuters contributed to this story

  Price   Change %Change
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BWA
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MA
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V
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MCD
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  • Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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  • Guy Adami is a contributor on CNBC's "Fast Money." He also is managing director of stockMONSTER.com.

  • Najarian, the "Pit Boss," is cofounder of optionMONSTER.com, a news site for options traders.

  • Finerman is president of Metropolitan Capital Advisors, Inc., a company she co-founded.

  • Founder of EmergingMoney.com

  • Chief Market Strategist for Virtus Investment Partners & CNBC Contributor

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