Why Berkshire Upped Its Stake in GM

It's true that decades of mismanagement of General Motors led to a painful bankruptcy in 2009, but it emerged a leaner, stronger company, and now Berkshire Hathaway has put a huge vote of confidence in the company by buying an additional 10 million shares. GM's turnaround, however, is still a work in progress. Investors around the world are wondering whether GM has what it takes to reclaim its former glory. John Rosevear has put together a brand-new premium research report telling you what you need to know about GM and its turnaround. If you own or are thinking about owning GM, then you don't want to miss this report. Click here now to get started.

Andrew Tonner: Hey, Fools, Andrew Tonner here. I'm joined today by our Fool.com analyst Brendan Byrnes.

Brendan, let's take a look at GM (NYSE: GM  ) . The stock actually recently received a piece of pretty good news -- news breaking that Berkshire Hathaway (NYSE: BRK-B  ) was actually increasing its stake in GM. When you look at this storyline, what does it mean for investors?

Brendan Byrnes: Yeah, at the end of 2012 we found out that Berkshire Hathaway increased their stake in GM from 15 million shares to 25 million shares. Definitely they believe in this company. It remains a very cheap stock.

It's important to note that this is not Warren Buffett buying GM. It's Ted Weschler or Todd Combs, one of the two. It's under $1 billion, which qualifies as not enough for Warren Buffett to get involved with.

Overall, GM: cheap stock, as I mentioned; performing incredibly well in North America right now, especially as they execute their plan; cost savings; moving more vehicles onto core platforms -- that should really help them. Also the introduction of two new big pickup lines, which we know are higher margins than the smaller cars, should help them coming out this summer, so I'm bullish on GM, especially in North America.

Europe remains a mess. They lost $1.8 billion in Europe in 2012. I don't think it's going to get much better in 2013. They say they're on track to break even by mid-decade. Investors need to really, really watch this because a lot of times what we've seen ... we saw it with Ford (NYSE: F  ) in 2012. Originally they said they were going to lose $500 million, then they said they were going to lose $1 billion, then they said they were going to lose more than $1.5 billion. Keep an eye on this. Europe has some serious structural issues. We know the issues, especially for GM and Ford in Europe. They have said they're structural; they're not just cyclical in nature.

We like what GM is doing. I don't think they have as succinct a turnaround plan in Europe as Ford does. I think they need to make a few more tough decisions. They were going to close some plants, but overall, GM, trading where they are now, they have had a recent run up, but I do think this remains a cheap stock, especially if you believe in the product of GM. It remains a product-driven business. If you're making good cars, you will succeed overall.

They're going to have to fight off Toyota, Honda, Volkswagen, which is increasingly gaining steam. They want to be the world's biggest automaker in a few years. We'll see if they can do that, but you have to like GM's position in North America. You have to like it in China, overall.

Even after the recent run-up, I think it remains an attractive stock for long-term investors. You have to watch the cyclicality of this in a global economy, and you have to watch Europe, but overall I think still an attractive entry point for long-term investors, despite the run up.

Andrew: Brendan, yeah, definitely something to watch. GM -- a cheap, cheap stock with some opportunity, it sounds like. Thanks for your insight.

Thanks for watching, folks, and Fool on!


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  • Report this Comment On February 19, 2013, at 8:32 PM, Mega wrote:

    "It's Ted Weschler or Todd Combs, one of the two."

    It's Ted, Todd focuses on the financial industry.

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