Investment by Buffett's Berkshire Boosts GM Shares

Wednesday, 16 May 2012 05:13 PM

 

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Shares of General Motors Co. rose the most in almost a month Wednesday after Warren Buffett’s Berkshire Hathaway Inc. disclosed it bought a stake in the largest U.S. automaker.

GM gained 2.3 percent to $21.91 at the close in New York, the most since April 17.

The Buffett-led company held 10 million shares of the automaker on March 31, Omaha, Nebraska-based Berkshire said in a filing disclosing U.S. stockholdings after the close of regular trading Tuesday.

“Seems like GM’s low valuation is just too good for Warren to resist,” Adam Jonas, an analyst with Morgan Stanley, wrote in a note to investors. “While buying 10 million shares of GM isn’t a huge bet (yet), the market signal for the U.S. auto industry is as unprecedented as it is fascinating.” Jonas titled the report “Buffett Motors.”

The automaker’s shares dropped 35 percent before Wednesday since GM’s 2010 initial public offering. The Detroit-based company regained its spot as the world’s top-selling automaker last year when it posted a record $9.19 billion profit.

GM is benefiting from a recovering U.S. auto market, on pace for its best vehicle sales since 2007, and growth in China, where it’s the market leader. Chief Executive Officer Dan Akerson has introduced models such as the Sonic small car and ATS luxury sedan to push Chevrolet and Cadillac as global brands.

“GM has a lot of good product in the showroom and product coming in 2013,” said David Kudla, who manages about $1 billion as CEO of Mainstay Capital Management. “When we look at the economy, at the fundamentals of the industry and the company, the stock’s a buy.”

Pent-Up Demand

Americans put off purchases of new cars and trucks during the recession, sending the average age of vehicles on U.S. roads to a record high of 10.8 years, according to researcher R.L. Polk & Co., based in Southfield, Michigan.

“There’s a pent-up demand for cars in this country, because of the financial crisis,” David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business, said yesterday in a phone interview. Buffett’s stock pickers “had an opportunity to buy at an attractive price, well below the initial public offering price,” he said.

Jim Cain, a GM spokesman, said Tuesday that the automaker doesn’t comment on investors buying or selling its shares.

© Copyright 2014 Bloomberg News. All rights reserved.

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