market folly

At Invest For Kids Chicago yesterday, Marc Lasry of Avenue Capital gave a presentation on going long General Motors (GM).

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.


Long General Motors (GM)

Lasry pitched GM, saying that the company had the largest US market capitalization at $12.2 billion in the late 1950's. In 2000, GM's revenue was higher than Wal-Mart at $189 billion. Currently, GM equity trades at less than 1.0x EV/EBITDA (including JVs at 17.9B, cash 20.3B, Market Cap 41.7B, other assets 4.3B, 5.5B in debt, and 6.9B preferreds).

He compares GM now to Apple (AAPL) back when they needed $150 million from Microsoft (MSFT) or AAPL would have gone bankrupt. Since that loan from Microsoft, Apple many years later has become the largest company in the world at $350 billion.

Lasry says investors are focusing on timing re: GM and that's not the right way to do it. Ultimately, he acknowledges there's lots of risk out there. But the key question you have to ask, he says, is "are you getting paid enough to invest?"

The risk for GM is another recession and people buy fewer cars. As a true contrarian, he likes to buy when others aren't. He started buying the bonds when it was 2x EBITDA and you can get an even better entry point today. We just covered how David Einhorn's Greenlight Capital bought GM equity in the third quarter as well.


Long Hovnanian (HOV)

Lasry also mentioned that he liked homebuilder Hovnanian as rates and prices are both very low. The company has 350 million in cash, 1B inventory and 1B NOLs. He likes the 6 to 7% bonds at 35 with 20% yield. You get paid to wait and thinks you are covered and he'd rather get paid to wait with the bonds than take on more risk with the equity. Avenue Capital believes that the US GDP will have 1% growth next year and no double-dip recession.

You can view full notes from Invest For Kids Chicago here.