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GM = Government Motors!

Finally GM saga is reaching its climax. It's sad to see such as American icon going BK just after it has celebrated 100 years. On June 1, 2009, GM would file for BK and become "Government Motors" since US Government would own nearly 70% stake in the company. This used to be case when capitalists used to criticize Indian Government or Chinese Government owning large public enterprises. I am not in favor of government owning any companies but sometimes they do have to in case market forces don't function properly as we had seen in case of financial crisis.

So what's next for GM ? IMO, it would get restructured and emerge as much smaller company so that it can survive and prosper. Say bye-bye to big SUVs like Hummer and welcome to green cars like Volt. However they don't have much time - if they don't fix it soon, it may come back to similar state in 10-20 years.

Markets are at cross-roads with and trying to establish a base around 8500 and looking for direction. With only one month left in Q2, some of the pre-announcements would help it establish direction. I am still sticking to my forecast of DOW reaching 9000 and S&P touching 1000 before labor day weekend.

Now let's come to stock of week.

This is first time, I would be recommending a US bank as stock of week.

Company: Regions Financial
Symbol: RF
Buy price: $3.9 to $4
Target price in 12 months: $6 (50% return)
Information:
Regions Financial Corporation (Regions) is a financial holding company that operates throughout the South, Midwest and Texas. The Company provides traditional commercial, retail and mortgage banking services, as well as other financial services in the fields of investment banking, asset management, trust, mutual funds, securities brokerage, insurance and other specialty financing. Regions conducts its banking operations through Regions Bank, an Alabama chartered commercial bank that is a member of the Federal Reserve System. The Company operates in three segments: General Banking/Treasury, Investment Banking, Brokerage and Trust and Insurance. As of December 31, 2008, Regions operated approximately 2,300 automated teller machines (ATMs) and 1,900 banking offices in Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina, Tennessee, Texas and Virginia

Reasons for selection:
  • Assets over $140B
  • One of the bank which went through stress test and IMO performed worst (which is reflected in stock price)
  • Have to raise $2.5 B as part of stress test results out of which it is on track to raise about $2B by issuing common shares at $4 and some preferred shares
  • One of the major regional bank with over 1900 branch can be takeover target for companies like Morgan Stanley or Canadian banks
  • Almost all the bad news is already priced in the stock which is trading like "perpetual call" option on survival
Do your own due-diligence and invest with caution (I have invested some amount in this stock at recommended buy price)

Good luck and have a good weekend !

/Shyam

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