EC Buffett Stocks In Focus: General Motors

Warren Buffett’s investment conglomerate, Berkshire Hathaway (BRK-A), has a $148 billion stock portfolio. Buffett has filled his portfolio with high quality dividend growth stocks.

One such dividend stock is General Motors (GM). GM stock makes up approximately 1.2% of Berkshire’s portfolio.

GM does not have a long history of paying dividends—the post-bankruptcy GM has only 4 years of dividend payments under its belt.

As a result, it will need several more years before it becomes a Dividend Achiever, a group of 272 stocks with 10+ years of consecutive dividend increases.

But, now that GM has resumed paying steady dividends, it is an interesting consideration. It has a hefty 4%.

And, thanks to continued market pessimism, GM stock is very cheap.

Buffett famously looks for companies with share prices that are trading at a discount to their perceived intrinsic values.

Based on GM’s low valuation and high dividend payout, it is not hard to see why Buffett owns GM stock.

Business Overview

Investors probably still have bad memories of GM, given the company’s high-profile bankruptcy in 2009 and ensuing rescue by the U.S. government.

The good news is, now that the company has righted the ship, it is on much firmer footing. Earnings-per-share, as adjusted for non-recurring costs, nearly doubled from 2013-2016.

(Click on image to enlarge)

GM Growth

Source: January 2017 Global Auto Industry Conference, page 2

Last year, GM’s revenue and adjusted earnings-per-share increased 9.2% and 21.9%, respectively. These strong results were fueled by rising vehicle sales and improved margins.

GM sold 10 million vehicles in 2016, up 1.2% from 2015.

The two main drivers of this growth were Chevrolet and Cadillac. Chevrolet gained 0.5% of domestic market share, while sales of Cadillac vehicles rose 11% for the year.

Moreover, adjusted earnings-before-interest-and-taxes (EBIT) margin rose 40 basis points in 2016. The company has removed billions from its cost structure, across several functions including materials, logistics, manufacturing, and SG&A.

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Moon Kil Woong 2 years ago Contributor's comment

I don't deny $GM is worth looking at at current valuation. That said, I'd pick up #Ford before #GM if I wanted to get into the auto sector.