Warren Buffett is one of the most successful investors of all time. And when he bets on a company, it pays to find out why. As of June 2022, Buffett’s holding company, BerkshireHathaway, owns approximately 53 million shares in general motors (GM -0.60%) — a position worth $1.7 billion.
Let’s discuss why General Motors fits the mold of a Berkshire Hathaway investment and why you might want to consider it for your portfolio as well.
1. A potential economic moat in electric vehicles
Coined by Warren Buffett, the term economic moat refers to a company’s ability to create and maintain a competitive advantage over rivals. While GM doesn’t appear to have any immediate advantage in developing electric vehicles, it could be well on its way to building one.
GM is aiming for an all-electric future, with zero crashes, zero emissions, and zero congestion. And to achieve this, management plans to invest $35 billion in EV technology by 2025 and launch 20 new EV models by 2028. CEO Mary Barra is very optimistic about her company’s ability to succeed in its electric transition. She predicts that GM will be able to outsell its biggest EV rival, Teslamidway through the decade (Tesla sold roughly 350,000 EVs last year compared to GM’s 25,000). And this is where the company will have to lean on its natural advantages.
GM’s sprawling manufacturing infrastructure, parts and repair network, and relationships with consumers (the company delivered just under 6.3 million vehicles in 2021) could become a competitive moat that helps it convert buyers. of their traditional vehicles into buyers of electrified alternatives and quickly gain market share. If the company is successful, it could see its valuation rise as a result.
2. A reasonable appraisal
Warren Buffett is a value investor, meaning he likes to invest in companies with low multiples compared to their earnings and growth potential. General Motors fits perfectly into his investment philosophy.
With a forward price-to-earnings (P/E) multiple of just 5.2, the stock trades at a dramatic discount S&P 500averages about 18. More importantly, it’s much cheaper than “pure game” EV companies like Tesla, which trades for 45 times earnings, or Rivian, which is trading 63 times sales, despite not turning a profit (GM is trading 0.37 times sales). Investors may not see much of a future in GM’s gasoline-vehicle business, but they may be overlooking its EV potential relative to its peers.
By 2030, the company plans to double its revenue to $280 billion (compared to $127 billion in 2021) through its investments in electric vehicles and other related technologies, such as autonomous driving, which can be applied to a wide range of industries. such as logistics and even aviation.
Invest in a bear market
2022 has been a challenging year for investors. With inflation high (8.3% in August), the US Federal Reserve is raising interest rates to try to regain control of the economy, putting pressure on stocks.
That said, bear markets can be a great time to look for deals in the market, and investors can look to Warren Buffett’s portfolio for inspiration. General Motors could be a great pick because of its attractive electric transformation and its economic valuation.
Will Ebiefung has no position in any of the mentioned stocks. The Motley Fool has positions and recommends Berkshire Hathaway (B shares) and Tesla. The Motley Fool recommends the following options: Long $200 January 2023 Call Options on Berkshire Hathaway (B-Shares), Short January 2023 $200 Put Options on Berkshire Hathaway (B-Shares), and Short $265 Call Options on Berkshire Hathaway (B-Shares). January 2023 in Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.