The Big Three are up on Capitol Hill, making their case for a government bailout. Andrew Snyder says investors can position themselves to make a profit with auto-related stocks. He picks three companies on the auto supply chain that could get a boost if the government decides to “rescue” Detroit.

This from Today’s Financial News:

Detroit is once again on its knees in Washington begging for help. The nation’s automakers are desperate to paint a dire picture of their financial woes.

Whether their pleas are founded or are merely lame attempts at grabbing some free advertising is up to you to decide. To me, it is all a show. After all, the Big Three have not had this much free TV time since the last time they were begging for a handout.

Today, Ford (NYSE:F) is tugging on the economic hearts of Americans by releasing a report that shows if it fails over 3,000 workers in at least 25 states will lose their jobs. It is a disheartening failure, but last I heard Ford claimed it was not in danger of failing.

The company’s latest figures show Ford has a cash horde of over $18.5 billion and is planning to increase that position (through cutbacks and sales of assets) by as much as $17 billion in the near future. What’s more, Ford has ready access to a $10 billion line of credit.

If Ford has enough cash to keep its creditors at bay and its operations running, why is it on Capitol Hill begging for money?

Simple answer: easy money.

If somebody were to offer you an ultra-cheap loan that would increase your profit potential, wouldn’t you take it? As long as the interest rate (Congress is proposing a 5% rate) is lower than what Ford is currently paying, which it most certainly is, the loan is a good idea.

But Washington is not in the business of loaning corporations money, or at least it is not supposed to be. Congress needs to ensure it only intervenes in the most serious cases.

General Motors (NYSE:GM) with its dangerously low liquidity may truly need help, but Ford does not. If Ford gets a piece of the bailout action, Congress will unleash an avalanche of cries from major companies across the country searching for similar help.

Invest in the supply chain

Washington has the potential to send a handful of auto-related stocks soaring. While Wall Street is focusing on the Big Three, their suppliers are the ones truly getting a bailout. Many companies depend solely on the health of Detroit to fund their profits. If General Motors were to disappear, so would they.

That is why smart investors are not focusing on whether or not Ford, GM, or Chrysler will get a loan from the Treasury Department. They are looking to see which companies will benefit the most from a Washington-induced cash infusion.

Check out companies like American Axle and Manufacturing (NYSE:AXL) and its $1.50 share price. Or Magna International (NYSE:MGA). And you cannot miss Dana (NYSE:DAN) and its recent credit downgrades.

All three of these companies would likely see a strong surge in share price if news of successful bailout package leaks out of Washington. But you must not get carried away with your profit expectations. Analysts are already expecting some sort of industry relief, so government assistance is already priced into share price to a degree.

Anytime I find a stock that is about to make a big move in one direction or the other, I instantly think of a straddle opportunity. This options strategy (an investor buys call and puts options on the same strike price and expiration) will profit as long as the underlying stock makes a significant move in either direction.

This strategy may be unknown or confusing to many investors, so let me know if you would like more details. If I get enough demand, I will create a strategy for you to follow and post it on the site.

A desperate situation

There is no doubt that Washington has its work cut out. Detroit is begging for help. Americans know it is wrong to intervene with the free markets, but do not want to see their fellow citizens lose their livelihoods.

As investors, we must stand back and take an objective look to it all. When we do, the profit opportunities begin to shine through quite clearly.

Take a look at the automotive supply chain and the companies upstream of Detroit that will profit from Washington’s blank check.

I will leave you with this as food for thought: Obama’s economic aides are telling us any new economic stimulus must focus on the middle-class and not the nation’s rich elite. Their reasoning is that average Americans are better at spending their money than the nation’s upper class.

Source: Profit from Washington’s bailouts