had a rough 2014, but two prominent investors are nonetheless
sticking with the automaker. Warren Buffett and George Soros each
recently added GM shares to the portfolios of
and Soros Fund Management.
But are their buys enough reason for average investors to grab
some GM shares?
Buffett bought the Cadillac for himself, and the stock
for Berkshire. Source: Cadillac
In their latest quarterly SEC 13F filings, Buffett and
Soros reported they increased their stakes in General Motors by 1
million shares and 412,438 shares, respectively. Soros also added
316,000 GM call options. This makes them among GM's largest
shareholders, and certainly the best known.
For his part, Buffett is bullish on Detroit and considers GM
CEO Mary Barra to be "a real car guy." The Oracle of Omaha
has added to his GM stake in each of the past few quarters and
now holds over 2% of the automaker.
But Buffett and Soros have approached GM differently. While
Buffett has accumulated shares a few quarters to build his stake,
Soros has been buying and selling GM shares at different times.
Consequently, following Soros position would not be feasible for
average investors since his buying and selling occurs more
frequently than Soros' reports his activity.
Buffett and Soros also have both kicked the tires on auto
dealerships. In late January, Soros' assistants were reported to
be looking at dealerships for a potential acquisition. Buffett
has gone even further by purchasing the Van Tuyl auto dealer
chain in October.
It's clear both of these investors are interested in
GM and auto sales in general, but another investor is
entering the picture and could shake up the company. Harry Wilson
represents private equity investors holding about 2% of GM and is
pushing for an $8 billion stock buyback. It appears Wilson and
the private investors have tired of GM maintaining a "fortress
balance sheet" of $25 billion in cash while shareholders see low
General Motors management has taken issue with the share
repurchase proposal, but Wilson has not backed down. Buffett and
Soros bought their shares before Wilson's activist push began and
have not voiced opinions on the matter. Investors should look for
any comments from Buffett and Soros as they could influence the
results in a potential proxy battle.
Buick Regal. source: Buick
If successful, Wilson's buyback proposal could be a catalyst
to push shares higher. However, implementing this buyback would
make GM a riskier investment as it would have less cash available
in the event of an economic downturn.
Valuation and dividends
While I don't think the average investor should blindly follow
the buys of billionaires, the factors that attracted Buffett and
Soros to GM should appeal to many investors.
The first component is valuation. At 8.3 times estimated 2015
earnings and 7.8 times estimated 2016 earnings, GM trades well
below the market average while demonstrating growth in
The automaker also pays a healthy dividend of 3.8%, well above
the market average. These two factors together make GM a
investment worth looking at from a dividend value
Last year, GM shares were held back as the company recalled
millions of cars. The most obvious cost of the recall was the
quantifiable financial one which GM has announced has come to
$4.1 billion so far. Out of the total costs, $2.8 billion came
from repairs with almost all of the remainder coming from
compensation fund payments and a charge taken for future recall
expenses. For 2014, GM still managed to turn a profit and the
recall issues do not appear to have threatened the automaker's
Chevrolet Silverado. Source: Chevrolet
While the recalls did generate negative publicity, sales at GM
continued to rise. This mirrors the pattern of other major
automaker recalls including the
acceleration-related recalls. In both cases, the companies
incurred negative publicity and fines but endured no long-term
impact on sales.
With most of the recall expenses being one-time items, they
should taper off for future years. At the same time, investor
concerns over the recalls should diminish and boost the valuation
of GM shares.
The GM sales picture is also positive, with 2015 already off to a
good start. Year-over-year January sales were up 13%, which has
led industry analysts to forecast stronger overall 2015
The automaker also expects to turn a profit in Europe by 2016.
After losing billions on the continent over the past several
years, turning Europe profitable would boost GM's bottom
Investors can also look to China, where the automaker is
posting double-digit sales growth and is investing
in five more manufacturing facilities to address the market. With
one of the largest market shares in China, GM is also a play on
emerging markets growth, with China poised to drive the automaker
Buffett and Soros are bullish on the auto industry and have been
buying GM shares to get exposure; however, Soros does a lot
more buying and selling which draws into question whether he is
actually bullish on GM for the long-term or just interested as a
trade. But GM also has much to offer average long-term investors,
including a 3.8% dividend, a low valuation, worldwide sales
growth, and a potential for multiple expansion as recall concerns
Personally, I am bullish on GM, and agree with Buffett's
position as a long-term investor. Could it be a good fit for your
portfolio? You decide.
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These 2 Billionaires Just Bought More General
Motors Shares: Should You Join Them?
originally appeared on Fool.com.
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