Motley Fool: General Motors deserves test drive

Many investors are anticipating the spread of electric cars and self-driving vehicles and assuming that the traditional automakers are toast. General Motors’ (NYSE: GM) CEO Mary Barra sees it differently.

GM’s Bolt was the first mass-market electric vehicle with a range of more than 200 miles, and the company is likely to ship a mass-produced self-driving Bolt in the coming months, for ride-hailing duty with Lyft.

GM also happens to own 9 percent of Lyft, along with 100 percent of Maven, an app-driven urban car-sharing company. The Bolt was designed from the ground up to serve as a platform for future tech, including (but not limited to) GM’s homegrown self-driving system, and was optimized for fleet use in urban settings with companies such as Lyft and Maven.

More than just about any automaker, GM has positioned itself to thrive and profit handsomely in the self-driving, shared-mobility future. Meanwhile, its core business continues to generate huge profits in the U.S. and China, thanks to the popularity of its well-regarded line of SUVs and trucks. Barra and her team have been relentless about cutting marginal businesses – including selling off GM’s money-losing European operation – and investing in new products to maximize current and future profitability.

With its low price-to-earnings ratio and a dividend that recently yielded a hefty 4.4 percent, Detroit’s largest automaker deserves a test drive.

Ask the Fool

Q: When we buy a company’s stock through a brokerage, where does our money go? – M.L., Strasburg, Virginia

A: Well, it doesn’t go to the company. It’s a bit like trading cards. When you buy a pack of gum that comes with a set of cards in it, the gum-and-card company gets its money. After that, the cards may be traded between many owners, going up and down in value, with the card company never getting a penny more.

When a company first issues shares of its stock to the public via an initial public offering, also known as an IPO, it collects its money for them, based on their estimated value at the time. After that, the shares are typically traded on major exchanges. The buyers and sellers exchange money using middlemen such as brokerages, who take a cut.

Companies occasionally do have “secondary” offerings of stock, collecting money when those new shares are released into the market. But after that, the shares once again are simply traded between investors.

Q: I want to open a brokerage account, but I don’t have much money, and the brokerages I’ve looked at require minimum initial investments of $2,500 or more. What can I do? – F.D., Winona, Minnesota

A: Plenty of online brokerages, such as TD Ameritrade, don’t have minimums for cash accounts or IRAs. Others have relatively small ones. Schwab, for example, requires just $1,000 for some accounts. Learn about and compare brokerages online at stockbrokers.com/compare and fool.com/how-to-invest/broker.

Note that commissions at many brokerages are now as low as $5 or $7 per trade, down from $30 to $50 a few years ago, and far better than the hundreds of dollars that some full-service brokerages have charged their customers.

My Dumbest Investment

A “friend” of mine looked into a company with technology for making diagnostic images of breasts without compressing them. My wife hates mammograms because they hurt, so this company’s idea sounded great.

There turned out to be a few problems that I didn’t quite appreciate, though: 1) The company had not received approval for its systems to be used in the U.S. 2) The company did not have any revenue. 3) The company did not have a manufacturing plan.

I invested anyway. Yikes! – L., online

The Fool responds: Yikes, indeed. The company’s shares were at one point referred to as a “sub-penny stock,” because they were trading for much less than a penny per share – and that was even after shares surged some 63 percent in a single day.

In general, penny stocks, which are often very risky and volatile, trade for about $5 or less per share. Penny stocks can seem exciting, as you can buy hundreds or even thousands of shares for a few hundred dollars or much less. They typically have exciting stories, too, such as the possibility of painless mammograms or cures for cancer around the corner or imminent discoveries of gold. As naive investors pile in, penny stock shares can soar, but they’ll frequently crash, too, when shares start getting sold – often by the people who hyped the stocks in the first place. Stay away!