Hedge fund Hayman Capital has taken a stake in General Motors Co and believes the U.S. automaker's stock could rise more than 40 percent over the next 12-18 months after the U.S. Treasury sells its stake in the company, a source familiar with investment said on Wednesday.
Hayman Capital's move into GM comes as the U.S. government is in the process of selling its remaining stake in the company and as other new potential investors eye the stock, said two people working at a different hedge fund but who were not permitted to speak to the media.
Hayman is well known for earning millions by betting against the overheated subprime market before the financial crisis.
In a presentation posted on investing website HVST.com, Hayman founder Kyle Bass called the American car maker one of the best investments available now.
"GM equity represents one of the most compelling risk/reward situations of any large cap in the world today," he said in the presentation. "Detroit is back. And GM could lead the way forward on the equity front."
Bloomberg first reported news of the stake, which it called one of Hayman's largest investments.
GM shares were up 1.2 percent, or 44 cents, at $38.58 in afternoon trade on the New York Stock Exchange.
Neither Bass nor anyone at his Dallas-based firm, which invests roughly $1.1 billion, returned calls seeking comment.
GM declined to comment. A spokesman told Bloomberg the company was not aware of any position Hayman had taken.
Treasury has said it will exit its remaining GM stake of about 2 percent by year end, and investors expect the automaker to initiate a common stock dividend and ramp up stock buybacks once that has occurred.
The U.S. government inherited a 60.8 percent stake in GM after the taxpayer bailout and bankruptcy reorganization in 2008 and 2009. It has sold off blocks over the last several years.
In his presentation, Bass said he believes Treasury's exit would remove selling pressure on the stock and likely result in a "meaningful dividend and/or buyback program" within 45 days. He also cited the benefit of the continued rollout of GM's redesigned full-size pickup trucks as well as next year's launch of the new versions of the large SUVs based on the same platform, both highly profitable vehicle lines.
Bass said GM trades at a "significant discount" to its peers and the stock could rise at least 25 percent in the next 12 months and more than 40 percent over 18 months. Another hedge fund manager, who is also invested in GM but not permitted to speak to the media, was even more optimistic, saying the stock could hit $60 a share.
Bass said in the presentation that GM should at least trade in line with its peers. GM trades below 3 times earnings before interest, taxes, depreciation and amortization (EBITDA), while Ford Motor Co trades at 4.4 times EBITDA, Bass said.
"A strong case can be made that GM should trade at a premium to the group given its unique position and strong underlying fundamentals, a best‐in‐class leverage to global growth markets, improving operational efficiency from ongoing turnaround efforts and an improving product cadence," Bass said in the presentation.
Bass has been taking on new positions in the last months including making bets on ailing retailer J.C. Penney and software maker Microsoft.
Regulatory filings show that Hayman Capital owned 5.7 million shares of J.C. Penney stock at that end of the third quarter and 1.5 million shares of Microsoft. He also owns a stake in Herbalife, the nutrition and supplements company hedge fund manager Bill Ackman is betting against.
Even though Bass' fund is on the small side, his prominence as a manager is outsized in part because of his early bets against the overheated housing market and his vocal criticism of Japan. He earned more than half a billion dollars on his bet against subprime mortgages and was profiled in writer Michael Lewis' book "Boomerang".
GM has been popular with a number of prominent hedge funds.
Taconic Capital Advisors owns 11.8 million shares, having added 1.5 million shares during the third quarter. David Einhorn's Greenlight Capital had 10 percent of his portfolio invested in the company, owning 17 million shares, according to regulatory filings. Warren Buffett's Berkshire Hathaway owns 40 million shares. Davidson Kempner Capital Management and Moore Capital, among others, also owned stakes.
(Reporting by Ben Klayman in Detroit and Svea Herbst-Bayliss in Boston; Editing by Alden Bentley, Bernard Orr)