A Surprising Misstep by Warren Buffett?
As we enter a new year, it’s worth taking a closer look at the investment decisions made by the legendary Warren Buffett, CEO of Berkshire Hathaway. One particular move that caught my attention was his decision to unload all of Berkshire’s General Motors stock throughout 2023.
A Billion-Dollar Mistake?
At the beginning of 2023, Berkshire owned 50 million shares of GM, valued at approximately $1.7 billion. However, Buffett’s decision to sell the entire stake may have been premature. Since then, General Motors’ stock has surged by more than 55%, and the company has demonstrated impressive resilience in the face of higher interest rates and cautious consumer spending.
General Motors’ Impressive Performance
The company’s third-quarter 2024 earnings report exceeded expectations, with both top- and bottom-line results surpassing forecasts. Moreover, GM increased its full-year earnings guidance, defying market expectations. At its October 2024 investor day, management surprised the market by announcing that its 2025 adjusted earnings will be in a “similar range” to 2024.
Encouraging Developments
Other recent news has been equally promising. GM reported a 4% increase in sales, with its market share growing overall and doubling in the electric vehicle segment. Deliveries in China also saw a significant 40.6% sequential increase in the fourth quarter. Furthermore, GM is shifting its Cruise autonomous strategy from robotaxis to its Super Cruise technology for personal vehicles, a move expected to save the company over $1 billion annually.
Aggressive Share Buybacks
GM has been actively using excess capital to repurchase shares, with its outstanding share count declining by 21% since late 2023. This aggressive buyback program has contributed to the stock’s 40% increase since its announcement. With the stock trading at just 5.5 times trailing-12-month earnings and 5.1 times forward earnings, it’s no wonder GM is being so aggressive with buybacks.
A Bargain in the Making?
If GM can achieve its 2025 targets and execute its growth plans effectively, the stock could be a tremendous bargain. While Buffett’s reasons for selling General Motors remain unclear, it’s possible that he was deterred by perceived risk factors, such as the forecasted decline in new auto demand and the auto workers’ strike in 2023. However, I believe he may have made a mistake, and GM’s stock could be one of the biggest bargains in the market right now.
Expert Insights
Before investing in General Motors, consider the expert analysis from The Motley Fool’s Stock Advisor team. They’ve identified what they believe are the top 10 stocks for investors to buy now, and General Motors wasn’t one of them. Their guidance could help you make informed investment decisions and potentially generate monster returns in the coming years.
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