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, Berkshire Hathaway, owns roughly 53 million shares in General Motors (NYSE: GM) -- a position worth $1.7 billion.
Let's discuss why General Motors fits the mold of a Berkshire Hathaway investment and why you may 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 immediately seem to have any edge in developing EV's, it could be on the way to building one.
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GM aims for an all-electric future, with zero crashes, zero emissions, and zero congestion. And to pull it off, management plans to invest $35 billion in EV technology by 2025 and release 20 new EV models by 2028. GM's CEO, Mary Barra, is very optimistic about her company's ability to succeed in its electric transition. She predicts GM will be able to outsell its biggest EV rival, Tesla, by mid-decade (last year, Tesla sold roughly 350,000 EVs compared to GM's 25,000). And this is where the company will have to lean into its natural avantages.
GM's extensive manufacturing infrastructure, parts and repair network, and consumer relationships (the company delivered just under 6.3 million vehicles in 2021) could become a competitive moat that helps it convert buyers of its 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 valuation
Warren Buffett is a value investor, which means he likes to invest in companies with low multiples compared to their earnings and growth potential. General Motors fits perfectly into his investing philosophy.
With a forward price-to-earnings (P/E) multiple of just 5.2, the stock trades at a dramatic discount to the S&P 500's average of roughly 18. More importantly, it's much cheaper than "pure play" EV companies like Tesla, which trades for 45 times earnings, or Rivian, which trades for 63 times sales, despite generating no profits (GM trades for 0.37 times sales). Investors might not see much future in GM's gasoline-powered vehicle business but may be overlooking its EV potential relative to peers.
By 2030, the company plans to double its revenue to $280 billion (compared to $127 billion in 2021) through its investments in EVs and other related technologies such as autonomous driving, which can be applied to a wide array of industries such as logistics and even aviation.
Investing in a bear market
2022 has been a challenging year for investors. With an elevated inflation rate (8.3% in August), the U.S. Federal Reserve is raising interest rates to try and regain control of the economy -- putting pressure on stocks.
That said, bear markets can be a great time to shop for deals in the market, and investors can look to Warren Buffett's portfolio for inspiration. General Motors could make a great pick because of its compelling electric transformation and dirt cheap valuation.
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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway (B shares) and Tesla. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
