Warren Buffett's Berkshire Hathaway owns a stock portfolio valued at nearly $350 billion. More than 40% of that portfolio is tied up in Apple stock, but the rest is spread out among dozens of other investments. Some of them have been held for decades, while others are much newer.
Two stocks in Berkshire's portfolio that stand out as great values are General Motors (GM -0.17%) and Ally Financial (ALLY 0.88%). Here's why considering these Buffett stocks for your own portfolio would be a wise move.
General Motors
Berkshire Hathaway owns a 3.6% stake in automaker General Motors, worth about $1.6 billion at today's price. GM is smack in the middle of an aggressive transition to electric vehicles (EVs), but the company is still producing exceptional profits.
GM is now the No. 2 electric vehicle manufacturer in the U.S., and it's got multiple EV launches coming up this year. The Silverado EV is slated to launch late in the second quarter to fleet customers; the Blazer EV will be available this summer; and the Equinox EV will offer customers an affordable option later in the year. On the commercial side, GM expects its BrightDrop unit to produce $1 billion in revenue this year as it ramps up deliveries of its electric vans.
By 2025, GM is calling for $225 billion of total revenue, including at least $50 billion of EV revenue. The EV business should be profitable by then, driven by scale and falling battery costs. In the longer term, GM is aiming to reach around $300 billion of revenue by 2030, with operating margins expanding into the low teens. Cruise, GM's self-driving unit, is expected to hit $50 billion in revenue by 2030.
Whether these aspirations come to pass remains to be seen, but even if the company comes up short, it's hard to argue that GM stock isn't a good deal. The company expects to produce net income between $8.4 billion and $9.9 billion in 2023, along with adjusted automotive free cash flow between $5.5 billion and $7.5 billion. GM is valued at just $45 billion today, a valuation that's intensely pessimistic. The market just doesn't believe GM's long-term growth story.
While economic conditions will cause GM's results to ebb and flow, just like they always have, the company is in a great position to lead the EV industry. The company's balance sheet is strong, with $21.4 billion of cash and just $16.4 billion of automotive debt, which will help it get through whatever the economy throws at it.
GM certainly makes sense as a Buffett stock. The company competes in a concentrated industry, has the potential to grow earnings significantly, and is trading at a beaten-down valuation. It would be a great fit for any long-term investor's portfolio.
Ally Financial
Berkshire Hathaway owns a 9.9% stake in Ally Financial, an online bank focused on automotive lending. That stake is worth roughly $775 million.
While investors are rightfully concerned about smaller banks in the wake of the collapse of Silicon Valley Bank, Ally is unlikely to face a depositor exodus. The company focuses on consumer deposits, and it continued to win new depositors in the first quarter. Ally has 2.8 million retail deposit customers, with an average customer balance of just $50,000. About 91% of retail deposits are Federal Deposit Insurance Corporation (FDIC) insured, and Ally added the most depositors since 2009 in Q1 with a net gain of 126,000.
From a valuation standpoint, Ally stock looks cheap. Adjusted tangible book value currently sits at $32.80 per share, about $6 higher than the stock price. Importantly, Ally doesn't have the same time bomb on its balance sheet that helped trigger the collapse of Silicon Valley Bank. Just 3% of Ally's securities portfolio is held-to-maturity, so massive unrealized losses resulting from rising interest rates shouldn't be an issue.
Ally's net-interest margin, which is the difference between what it earns on assets like retail auto loans and what it pays to depositors and on its borrowings, is under some pressure as interest rates rise. Net-interest margin fell to 3.54% in Q1, down from 3.95% in the prior-year period. This caused net income to plunge, but Ally is still solidly profitable. The company expects to produce adjusted earnings per share of $3.65 this year, putting the price-to-earnings ratio just over 7.
On top of auto lending, Ally offers a variety of other products that have been growing nicely. The company does mortgages, personal loans, and credit cards, and balances have been growing in each of those businesses. Ally also offers brokerage and wealth services through Ally Invest. Ally Invest benefits from the company's expansive customer base; eighty-six percent of new Ally Invest accounts in Q1 were created by existing customers.
While the short-term picture for Ally will include plenty of volatility and uncertainty, the bank is in a good position to weather the ongoing banking crisis. For those willing to hold the stock for multiple years, Ally looks like a Buffett-approved bargain.
