Should I Buy GM Stock ?
Do you really want to buy GM Stock? In this really poor market environment, you would think most people’s desire would be to cut out risk, not take on more. Even with this perspective, many people are thinking that GM is so down in the dumps that it can only go up and that its obviously a sure thing at these levels. Right???
If you’re into taking risks and not necessarily seeing a profit from it, then by all means go. There are many reasons to be hesitant and take a second look at buying GM stock however. For one, just because the stock price has been knocked down to levels previously unheard of, doesn’t mean now is the time to go assuming it’s a deal. The stock market ultimately determines the price of a stock based on supply and demand. It weighs the long term prospects for what a proper pricing of the stock should be based on its fundamental business prospects and potential. A monthly long-term trend reading of GM’s stock chart shows that this steady devaluing of its stock isn’t a new occurrence, but is something that has been happening with GM over the last 8 years.
What this steady devaluation of GM’s stock (and thereby investor’s confidence in its prospects) is representing is the lack of ability for GM to pay DIVIDENDS. For a large blue-chip stock, being able to pay dividends is the de facto test of the company’s profitability and strength. If you look at the average gain in stocks over the last 50 years which is approximately 9% a year, fully 4-5% of that growth is through the payment of dividends. When you consider that inflation has been averaging about 3-4% over that same 50 year period, the dividend takes on much more importance than most investors have been viewing it with over the last decade. As P/E ratios continue to come down and the overall economy slows, companies that can pay a consistent dividend are going to be the ones that rise to the top of the performance heap.
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So, when you look at GM, the overall capacity that you should be judging its future stock price on is its ultimate ability to pay dividends. Since it has been accumulating debt left and right over the last decade (on top of its debt rating going to junk), you can see why this debt is going to prove a proverbial mill stone around the neck of GM.
When you piece this unbearable debt load together with the still subpar products and high labor costs when compared to Honda and Toyota, it becomes almost impossible to see how GM can dig itself out of its rut. The key you should be getting out of all this is: Don’t buy GM stock! If you see yourself as a market timer or gambler when it comes to stocks, then by all means go for it. However, if you’re investing for the long run, or really want to buy quality stock you don’t have to keep yourself up late nights over, then do yourself a favor and stay away from GM stock.
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