Heading into 2023, Warren Buffett-led Berkshire Hathaway‘s (NYSE: BRK.A)(NYSE: BRK.B) had a substantial investment in General Motors (NYSE: GM). According to Berkshire’s SEC filings, the conglomerate owned 50 million shares of GM at the beginning of that year, worth about $1.7 billion at the time.
Throughout 2023, Buffett unloaded all of Berkshire’s General Motors stock. However, I think he made the wrong decision. Not only is General Motors up by more than 55% since the end of the quarter when Berkshire sold, but the company is also doing a great job of maximizing profits and creating shareholder value.
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Even though Buffett sold GM, there’s quite a bit to like about the stock right now.
For one thing, the business has been surprisingly resilient, given the combination of higher interest rates and more cautious consumer spending. In the company’s third-quarter 2024 earnings, the latest reported, GM surprised investors with both top- and bottom-line results that handily surpassed expectations, as well as an increase in its full-year earnings guidance.
Then, at its October 2024 investor day, management surprised the market, which expected a slowdown, by saying that its 2025 adjusted earnings will be in a “similar range” to 2024.
Other recent news has been quite encouraging as well. GM reported that its 2024 sales increased by 4% and that its market share increased overall and doubled in the case of electric vehicles. Deliveries in China increased by 40.6% sequentially in the fourth quarter.
Another recent development is that GM will pivot its Cruise autonomous strategy away from developing robotaxis and toward developing its Super Cruise autonomous technology for personal vehicles. This move alone is expected to save the company more than $1 billion annually.
GM is also aggressively using excess capital to buy back shares. Since late 2023, when GM announced an accelerated buyback program, the company’s outstanding share count has declined by 21%, and there could be more buybacks ahead, especially considering the stronger-than-expected 2025 outlook and the fact that it hopefully won’t be sinking as much money into automation. It’s also worth noting that since the buyback was announced, GM’s stock is up by more than 40%.
It’s not too surprising that GM is being so aggressive with buybacks. The stock trades for just 5.5 times trailing-12-month earnings and 5.1 times forward earnings. If GM can achieve its 2025 targets and execute well on its growth plans, the stock could be a tremendous bargain.
Buffett hasn’t specified his reasons for selling General Motors. But it’s worth noting that he has been a net seller of stocks for the past couple of years and has aggressively reduced some of Berkshire’s largest investments, including the massive stakes in Apple (NASDAQ: AAPL) and Bank of America (NYSE: BAC).
My instinct is that he sold because of some of the perceived risk factors with the stock. At the time of the sales, many experts were forecasting new auto demand to fall more than it actually did, and in the fall of 2023, there was a strike by auto workers that cost GM an estimated $800 million.
Whatever the reasons Buffett had for selling might be, I think he’s wrong, and I don’t often say that about Buffett’s moves. GM is doing a fantastic job of keeping its sales and profit high, and I think this could be one of the biggest bargains in the stock market right now.
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Bank of America is an advertising partner of Motley Fool Money. Matt Frankel has positions in Bank of America, Berkshire Hathaway, and General Motors. The Motley Fool has positions in and recommends Apple, Bank of America, and Berkshire Hathaway. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.
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