The best way to promote confidence in something is to be a consumer of the something. Farmers like to drink their cow’s milk and eat their chicken’s eggs. Sean Coombs likes to wear Sean John clothing. The prolific restauranter does well by sitting at the bar of his newest eatery and taking in a meal and talking with staff. Mitt Romney will probably vote for Mitt Romney (though the verdict remains, uhm, uncertain, on that point).
It’s no different with stocks; companies with cash to burn, or those who want to boost their stock price, will often gobble up shares to instill confidence in the firm and raise the price of their shares by reducing the supply available to the investing public. Investors notice the smaller stock supply base and their scarcity alarm goes off, so they go to their brokers and give the ticker symbol to place an order and, voila, the stock price rises. (In theory, at least.)
General Motors CEO Dan Akerson tried to instill some confidence in his company last week, and purchased 25,000 GM shares for $20.35. This additional $500k investment brings his cumulative GM stock holdings to 272,828 shares, or $5.6 million.
It’s safe to say he has plenty of stake in the game, and this latest purchase is a way to try and instill that Mitt Romney confidence back into GM. While GM did post a $1.49 billion profit in the second quarter, that number is 41% below last year’s Q2 profit. The continuing erosion of its U.S. market share and the economic troubles throughout Europe are acting like a wet blanket on the overall business and, in turn, GM’s stock price. The stock has been trading around $20.0 for about two months.
But there are good things on the horizon for GM; an influx of new and redesigned vehicles are scheduled in the next 18 months, as the company is retooling its plants before starting manufacturing its next generation pickups and SUVs. Because of the retooling, GM’s third quarter production levels will drop, so if you’re a current GM shareholder, don’t expect a bump in that stock price just yet.
If you’re patient with this investment, it might pay off. The 52 week low is $18.72, so…