Thursday, March 09, 2006

Buying General Motors Stock

Last year, I invested some of my Roth IRA money in General Motors stock. I thought that since it had dropped to around 34 at the time and since it was generating a nice yield of over 6%, I thought it looked like a pretty good buy. Of course it continued to drop, and rumors of bankruptcy started floating around. When it dropped to the 20's, I got worried and bailed out. One of the main reasons was, you can't deduct a loss in an IRA.

Now that the stock is in the low 20's, I thought that if it was a buy before, it must be a better buy now. But I did some exploring and found that General Motors has some high yielding bonds that are traded like stocks and even some convertible bonds (sometimes spelled convertable bonds).

These bonds are much safer (will be paid off first before the shareholders get paid off if the company goes bankrupt) and provide a higher yield. There is also upside potential with the convertible bonds that can be converted into common stock. Keep in mind that all the bonds have a par value (redemption value) of $25. The following are what are available (symbol, interest rate, maturity, approximate price):

GKM, 7.25, 2033, 22
GMS, 7.5, 2044, 15
GXM, 4.5, 2032, 22, convertible*
GBM, 5.25, 2032, 16, convertible
GPM, 6.25, 2033, 16, convertible
* The GXM can be redeemed at $25 in March of 2007.

Because they are high yield, still means that they are high risk. They could drop in value even further. (No buy or sell is expressed or implied. In the interest of full disclosure, I own a couple of the above.)

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