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I Warned You About General Motors

The automakers never trade with the same valuation as the S&P 500 . So it's important to remember that the auto stocks are always cheap by this standard, and can always get cheaper. Valuation alone is not a reason to buy the stock. 

From the start, I have said that I am a buyer of GM between $30 and $32. The stock finally declined to that range on Friday. 

The reason I wasn't a buyer before was simple: the recall was likely to get worse before it got better.

That played out, and now that the company's first quarter earnings are expected to get drilled. 

However, General Motors still faces two major headwinds: a settlement with the Justice Department and a possible compensation fund for victims. 

The settlement with the Justice Department is likely to be north of $1 billion. Many investors are comparing it to Toyota Motors' (TM - Get Report) similar "recall coverup," which recently resulted in a $1.2 billion settlement

General Motors' recent decision to retain Kenneth Feinberg, an attorney who specializes in orchestrating victim compensation funds -- such as settlements after the Boston bombings, the September 11 attack and BP's (BP - Get Report) oil spill -- demonstrates that the automaker is at least considering setting up some sort of fund. 

It's a difficult call. On one hand, I know and like many people who work at General Motors. 

On the other hand, the company has made dire mistakes that are going to cost it dearly. That spells trouble for the stock. 

GM stock is finally in my buying range. It sports a healthy dividend yield of 3.7%, has a low valuation and a strong auto market. Things could be worse, despite what it seems. 

Mostly, I'm waiting for that scared-money washout, where the stock rapidly sells off, finds a solid level of support and then rockets back higher -- all in one session. 

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BP $43.04 -0.97%
GM $35.78 0.53%
TM $140.66 -0.39%
TSLA $231.55 6.01%
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