General Motors

GM has been in the headlines lately, and not in a good way: announcing losses, credit downgrades and layoffs. A lot of their troubles hve been laid at the door of the United Auto Workers union, but I think this is mistaken. GM has invested much of their research money in pie-in-the-sky hydrogen power, parts division Delphi has had an accounting scandal and GM had to to pay Fiat $2B because of a put option. Much of their new design effort has been in the Cadillac division, and they are much improved but ugly as sin. All of these are management problems.

All the press is bad and everyone is down on the company: a good bullish sign for the contrarian. The valuation is shockingly low: trading well under book value. Their price/sales ratio is an eye-popping 0.09, meaning that the entire company is valued at only nine percent of a year's sales. Market cap is a measly $19B. Investor Kirk Kerkorian has snapped up 7% of the company - and he is usually a savvy investor. So from a value approach, the company is a buy.

To unlock the value, the company needs to be taken over and the current management tossed out. Cars, which have seen little technological change, are starting to evolve in a big way. More and more is computerized. Hyrid power plants and new high-efficiency electric motors may soon mean that the gas engine is just used to charge the batteries.

Here is my modest suggestion: Microsoft should buy a controlling interest in GM. MSFT have $37B in cash. Toss out the old-time management and put in some tech-savvy hotshots. Sure, there is a union contract to renegotiate, but I think that is doable if management gets their act together. GM closed this week at $34.51.