Warren Buffett Saw GM’s Cuts Coming Under CEO Mary Barra

Warren Buffett [Public domain], via Wikimedia Commons

Warren Buffett often perplexes those “in the know.” He’ll keep buying stocks others don’t see the value in, and he’ll refrain from buying companies everybody else just can’t get enough of. The so-called Oracle of Omaha, for example, long resisted tech stocks as they rose in prominence and became nearly synonymous with American economic power. Buffett finally succumbed to the siren song of Apple in 2016 after testing the tech waters with some IBM in 2011. (The IBM has performed below expectations, Buffett has said.)

GM is another stock that Buffett has been keen on where others have been less sanguine. Berkshire owns a major stake in GM, increasing his holdings of the American automaker in 2017 and adding 1.4 million shares in the second quarter 2018 — making his stake worth an estimated $1.9 billion. GM has often been called his “most surprising” investment. (He’s not always in love with Detroit, though: Buffett dumped significant shares of GM back in 2014, despite Buffett’s being impressed by Mary Barra’s leadership and his new Cadillac. He had faith in Barra, he said, but she was in a tough spot not of her own making.)

Now GM’s announcement that it will reinvent itself, slashing jobs and closing American manufacturing facilities, makes Buffett’s recent faith in Mary Barra’s vision seem spot on. The Motley Fool, in analyzing Buffett’s GM interest, pointed out this in 2017:

Earnings growth. Thanks to that emphasis on ROIC, GM’s profit has been growing faster than its revenue — or put another way, GM’s operating margin has been increasing. Strong new products have been especially helpful here, and GM’s brand-new lineup of crossover SUVs should help sustain that trend…

That’s the kind of emphasis that Barra’s new moves are driving toward. The market reacted to GM’s announcement by boosting GM stock initially. But Buffett, like Barra, doesn’t much care what the stock does immediately. They are long-term value investors, and GM is transitioning while healthy to be ready for the future. Investors Business Daily cites the high dividend status of GM.