2023 and Beyond with General Motors
Buffett Disposed of This Stock, but I Believe His Decision is Incorrect
As we approach 2025, Warren Buffett's Berkshire Hathaway (BRK.A 0.74%, BRK.B 0.87%) retained a substantial investment in General Motors (GM 1.63%). Despite owning 50 million shares, worth approximately $1.7 billion, at the start of 2023, Buffett later offloaded the entire GM portfolio. However, reconsidering this decision might be beneficial, given the potential GM presents.
Reinventing a Legacy Acteur
Despite Buffet's decision to part ways, General Motors brightens the investment landscape in 2023.
Suspension of disbelief was the order of the day for investors in GM's third-quarter 2024 earnings, surpassing expectations in both revenue and profits, portraying resilience in the context of higher market interest rates and cautious consumer spending. To further impress, the company increased its full-year earnings outlook, with the expectation of maintaining similar earnings in 2025.
Notably, this optimism is nestled among significant milestones, such as:
- A 4% sales growth, with an overall market share increasing, and a doubling in electric vehicle (EV) market share.
- Announcement of an altered autonomous strategy, pivoting away from robotaxi development toward optimizing Super Cruise technology for personal vehicles to expected annual savings.
Additionally, GM's continued share buybacks have contributed to a 21% decrease in outstanding shares and a concurrent 40% increase in share price. Reflecting on the aforementioned developments, GM remains a strong contender in the vehicle market space, with a promising outlook.
The company's shares currently trade for 5.5 times trailing-12-month earnings and 5.1 times forward earnings. If GM achieves its 2025 targets and executes its growth initiatives, a compelling investment opportunity could emerge, making GM a potential bargain.
Berkshire's Decision to Sell
Buffett has remained ambiguous regarding the reasons behind the GM divestiture, opting to sell significant portions of notable stocks, including Apple (AAPL -3.84%) and Bank of America (BAC 1.10%). Speculations suggest market-related risks as the driving factor, such as forecasts of reduced auto demand and labor strikes.
Irrespective of Buffett's motivations, the assessment of GM's current standing and future potential as expressed in our previous analysis appears favorable.
In summary, Berkshire Hathaway's decision to sell its General Motors shares raises questions over the wisdom of Warren Buffett's investment strategies. Despite the company seemingly facing challenges in 2023, its performance since Buffett's exit has been remarkable, surpassing expectations and demonstrating a resilience in a challenging market environment. Therefore, GM is a compelling investment option worth revisiting.
In light of Berkshire Hathaway's decision to sell its General Motors shares in 2023, investing in GM's stocks could be a strategic move worth reconsidering. The company's impressive performance following Buffett's exit, including surpassing expectations and demonstrating resilience, highlights its potential as a strong investment opportunity.
Furthermore, GM's promising future plans, such as its 4% sales growth, increased market share, and doubling of EV market share, coupled with share buybacks and optimized Super Cruise technology, make it an attractive investment option with a compelling bargain potential.