Ford Motor Company (F): Can General Motors Company (GM) Warrants Turbocharge Your Portfolio?

Therefore, GM should stand tall no later than 2016.

If there was an investment that could control shares of GM stock into 2016, yet only require putting up a fraction of the capital versus buying common shares, it would seem like a good deal, right?

Well there is a way to do just that.

General Motors warrants are similar to owning long call options, but with a longer expiration date. Owners have the right to exchange one warrant for one share of common stock at a specific price within a stated period of time. General Motors has three such listed issues:

General Motors Warrants

*GM corresponding common stock price $35.85

The A and B warrants are “deep in the money,” meaning that the strike price is significantly below the current stock price. The warrant “premium” above the recent share price is small.

For example, GM “A” warrant owners have control of underlying GM common shares for nearly three years with only two-thirds of the capital outlay — all for a premium of only $0.50.

The C warrants are “out of the money,” meaning that GM stock must reach $42.31 before they have any value. The entire warrant is composed of premium. There is no current intrinsic value.

Foolish bottom line
General Motors Company (NYSE:GM) warrants offer investors the opportunity to participate in a great American corporate turnaround story at a fraction of the price of buying the common shares outright.

GM is flush with cash, has manageable debt levels, and has demonstrated the ability to generate positive free cash flow. Strong forward earnings estimates are coupled with a demonstrated ability to meet or beat the Street. Margins are improving, approaching those of Ford Motor Company (NYSE:F).

Nonetheless, General Motors securities remain speculative. The automobile business is cyclical and highly competitive. In addition, a weak EU economy and legacy pension liabilities pose risks to the investment thesis.

The article Can General Motors Warrants Turbocharge Your Portfolio? originally appeared on Fool.com and is written by Raymond Merola.

Raymond Merola owns General Motors “A” warrants. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford.

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