Dogged by headlines about a government investigation into ignition defects and recall of 1.6 million vehicles, General Motors' stock could still hit $50 per share as soon as next year, hedge fund founder Kyle Bass told CNBC on Friday.
Bass, founder of Hayman Capital and owner of a big position in GM, said he believes the automaker's stock could trade in the high $40s or even touch $50 a share in 12 to 18 months, more than $15 higher than current prices.
Despite the ongoing probe into GM's handling of the ignition defect and the massive recall that followed, Bass told "Squawk on the Street" that GM is one of the cheapest stocks in the market.
He also said the government could find itself liable for claims related to faulty ignitions because it took over the company when GM filed for bankruptcy in 2009. His bullish stance on GM came as a vehicle safety group attributed 303 deaths to faulty air bags in GM vehicles.
"When I look at this, this was not a bankruptcy," Bass said. "It was a government takeover of GM. It may very well be that the government is liable for the claims that the government is looking into. A lot of these claims were discharged in bankruptcy and the government ran the company for a while. I find it kind of silly."
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Bass grew to prominence after cashing in on a big bet against the subprime housing market before the mortgage bubble burst in 2007. Bass' stake in GM makes up nearly a quarter of his portfolio.
He also recently sold 5.6 million shares of JC Penney.
During his interview with CNBC, Bass also explained why his hedge fund increased its stake in nonbank mortgage servicer Nationstar Mortgage Holdings, a company under scrutiny from New York state banking regulators. Earlier this month, New York State Financial Services Superintendent Benjamin Lawsky demanded information from Nationstar about its portfolio and practices as his office looks at whether smaller, nonbank servicers can handle large numbers of mortgages.
Lawsky said his inquiry stemmed from hundreds of complaints his department received about the company. The banking regulator has described the rapid growth of nonbank mortgage servicers as a "troubling trend" that may hurt homeowners.
The lightly regulated nonbank servicers handle delinquent mortgage that traditional banks don't want. Bass said he sees $1.8 trillion out of the estimated $10 trillion U.S. mortgage pool to move to nonbank servicers in the next year.
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Bass added that nonbank servicers such as Nationstar don't generate large numbers of complaints compared to the number of delinquent mortgages they handle.
"The banks are almost three times worse at doing this and yet the regulatory inquiry is in the nonbank sector?" Bass said. "Ben Lawsky should focus on who the worst players are and not who the best are."
—By CNBC's Jeff Morganteen. Follow him on Twitter at @jmorganteen and get the latest stories from "Squawk on the Street." Reuters contributed to this report.