In what may be a sign that the market has reached a peak, on Wednesday General Motors Corp filed its IPO registration with the Securities and Exchange Commission (SEC). With the stock market behaving rather buoyantly despite a continually worsening economy, this may be the last chance for GM to cash out before the stock market catches back up to reality and comes crashing down.

IN PICTURES: What Is Your Risk Tolerance?

In the S-1 filing, there was no indication of the number of shares GM intended to sell, but according to a Bloomberg report, the company expects to raise approximately $16 billion. (Browse through more than 400 pages of GM's S-1 registration here.)

Should you be investing in this IPO? It depends. One year is hardly enough time to turn around a company as large as GM. And it doesn't build much confidence that Ed Whitacre announced he was leaving as CEO last week - only to be replaced by Dan Akerson, who seems to have a wealth of experience ... in telecommunications.

Pension Problems
One thing, among others, that continues to weigh down GM is its massive underfunded pension status. As of December 2009, the company's defined pension plan was underfunded by $17.1 billion. In addition, the company's pension data states that they expect to receive an 8.5% return on their plan assets. That is relatively high, and suggests they'll be looking predominantly into the equity markets to fill that $17.1 billion hole.

Roll the IPO Dice
But as IPOs in 2010 have gone on to show investors, IPO returns can be a crapshoot in these markets. Let's take a look a few of the big IPOs in 2010 and see how they've done.

Company Ticker Deal Size Total Return
SMART Technologies SMT $660mm -25.1%
Oasis Petroleum OAS $588mm +22.4%
CBOE Holdings CBOE $339mm -20.3%
Primerica PRI $320mm +41.9%
Tesla Motors TSLA $226mm +10.4%

What you'll notice from this list is that the GM IPO will eclipse all of the major American IPOs in 2010 with respect to size. In fact, it may become the second-largest IPO in U.S. history rivaling the $19.7 billion Visa IPO. However, what is yet to be determined is if the IPO will also eclipse the 2010 IPOs in returns. The only other car company to have an IPO in 2010 was Tesla Motors, and if you use their return pattern as a guide, investors (or speculators) in the GM IPO will be in for quite a ride. Tesla stock returned over 40% on its first day, but quickly fell to below offering price within a week, until finally settling down around $18 for a 10% total return - which is relatively small given the volatility.

The Bottom Line
In my opinion, long-term investors should initially avoid investing in GM stock. However as a speculator, you may want to dip your toe in this one if you like excitement and have capital to spare. With the political pressure for the IPO to succeed, GM stock could potentially be good for a quick flip. (For related reading, take a look at our IPO Basics Tutorial.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  3. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  4. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  5. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  6. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  7. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  8. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  9. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  10. Stock Analysis

    GoPro's Stock: Can it Fall Much Further? (GPRO)

    As a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center