Analysts and investors alike will be watching the ticker closely this week to see how the market responds to word that the “Oracle of Omaha” has grabbed 10 million shares of General Motors (GM) stock.
According to a filing with the Securities and Exchange Commission, Warren Buffett’s investment firm Berkshire Hathaway will spend $256.6 million for the stock, a nearly 20 percent premium over their value of $214.2 million when trading on the New York Stock Exchange wrapped up on Tuesday.
Shares of GM soared early on Wednesday before settling. GM closed the trading day up 0.50 points, or 2.33 percent.
But that’s still well behind the $330 million Buffett would have invested during GM’s November 2010 IPO. And the question is whether this move signals the possible turnaround in GM shares which have been lagging like most automotive stocks in recent months.
The maker has staged a modest recovery from its $19-a-share 52-week-low, and GM stock surged by $1 as soon as the market opened Wednesday morning before settling back slightly.
“I think he is spot-on,” wrote David Kudla, CEO of Mainstay Capital Management, which manages the portfolios for many General Motors retirees. Kudla emphasized that unlike some other high-profile investors Buffett focuses on the longer-term by buying into companies he sees as selling below their value.
GM’s current slump comes in sharp contrast to the optimism its IPO was greeted with, many analysts subsequently forecasting its shares could surge as high as $50 or more. But the maker – like most of its competitors – has been hit a variety of headwinds, including an uncertain U.S. economy and the European debt crisis.
That, in turn, has resulted in a slump of the Continental car market – worsening GM’s own slide in the European market. The maker had hoped to claw back into the black in 2011 but instead reported a sharp loss which triggered a recent management shake-up. It is expected to announce the latest in a series of turnaround plans in the coming months.
On the positive side, GM posted an all-time record profit of $7.6 billion. And while European losses hurt its first-quarter performance – a $1 billion net profit – earnings from the still-critical North American market shot to $1.7 billion before taxes.
Specifically why Berkshire Hathaway has decided to buy GM stock now is something the investment firm won’t disclose, though some analysts have become increasingly bullish about the industry overall – and the domestics in particular – as U.S. car sales continue to outperform the overall economy.
It’s by no means Buffett’s first automotive investment. He currently holds a roughly 10% stake in BYD, a Chinese automaker focused on battery-based powertrains. Short for Build Your Dreams, the firm is also one of the world’s largest providers of cellphone and laptop computer batteries.
Buffett himself drives a Cadillac DTS, one of relatively few luxuries for a man who still lives in the same Omaha home he has owned for over half a century.
Obviously, he's doing this to help Obama because he very much believes in him... but at least he's investing in an American company. Personally, I would have preferred that he had purchased the Canadian and US government stocks from GM instead.
Doesn't mean anything... $256.6 Million is a small bet from someone worth Billions. He loves Obama so think Propaganda value...
------------------ Dr. Ian Malcolm: Yeah, but your scientists were so preoccupied with whether or not they could, they didn't stop to think if they should. (Jurassic Park)
If I recall correctly from what I read, Buffett purchased those shares back around March, when it was around the $25 mark. Closing today after his pump announcement was $21.91 (has a high today of $22.56). I know Buffett is a long term player, but I can't help but believe that he announced he owned the shares to pump up the stock (so maybe he could bail out).
I hate to say this due to all my years working at GM, but I think Ford has a better line of products right now, and I was surprised Buffett didn't say he also bought Ford Stock. Which would make sense to purchase based on his reasoning of pent up demand for Auto's.
[This message has been edited by California Kid (edited 05-16-2012).]
If I recall correctly from what I read, Buffett purchased those shares back around March, when it was around the $25 mark. Closing today after his pump announcement was $21.91 (has a high today of $22.56). I know Buffett is a long term player, but I can't help but believe that he announced he owned the shares to pump up the stock (so maybe he could bail out).
That could very well be. I don't know the game well enough to say how many ways there are to play it.
That could very well be. I don't know the game well enough to say how many ways there are to play it.
The game is real nasty, take a look at what's happened to the Market in the past two months, it's not headed the right direction, Europe and China could crash the whole Market real hard right now, and Buffett knows that.
"On the positive side, GM posted an all-time record profit of $7.6 billion. And while European losses hurt its first-quarter performance – a $1 billion net profit – earnings from the still-critical North American market shot to $1.7 billion before taxes."
As said before, its easy to claim 'profits' when you dont have to subtract any debt obligations from your reported income. If I could get away with that, my income would go up 200% without making a penny more.
So Buffet just donated 256 to the Obama 2012 election campaign? Guess we know who's horse he is betting on, and this will no doubt will him favor from your communist overlord.
[This message has been edited by loafer87gt (edited 05-17-2012).]
Originally posted by twofatguys: Oh, he's not playing, he spends a few million, a few backs get scratched, and he doubles his money through other ways.
If GM "pays off" he wins twice. Think there will ever be a report on when he sells those shares? Brad
Bingo. He got a sweetheart deal because of who he is, and he wins, whichever way it goes. You can bet on it.
If Buffet had to live/drive the steaming pile of Camaro that I drove and he sat on the side of the road cussing noticed how it rarely drove reliably he would know why Ill NEVER buy a GM product again.
That Camaro was bad karma. SO bad in fact, the dealer told me the truck that was returning it to GM hit a deer and was disabled.
What about the original shareholders, where is their money/shares benefits?
[This message has been edited by htexans1 (edited 05-17-2012).]
If Warren held the stock, he's down about 33 Million at today's close.
Bufett has done this before several times, and tho legal, it raises questions even within the SEC. It's known as "putting a floor "on the bottom price range of a stock, and is almost always done, not because an investor or group of investors think a stock will go up or is a good fundamental buy, but rather to stop a 90 day or 30 day moving average slide--for "whatever reason". Usuually, someone, or someone they deal with, already has exposure to that equity, and the investor buys a large block (or addittional shares) hoping the buy will instill confidence in that equity. Another reason for doing it is to stop traders that are your competition from making a lot of money by 'shorting' a stock. Only Buffett knows his real reasons for doing this, but unless he is intending to postion himself for a Board position on GM, it's almost certainly because someone he deals with already has a position of exposure with GM. This trade actually was initiated on 3-31-2012, and there was a lot of activity re GM on that date--both in the "buy and sell" columns by big investors. http://www.gurufocus.com/StockBuy.php?symbol=GM
The last time Buffett did place a floor under an equity, it raised lots of eyebrows because of the particular stock he earmarked up to $20 billion for--his own Berkshire Hathaway. He did a massive buyback, saying he "believed it was undervalued". He also tried it a couple of years ago with CocaCola, and ended up apologizing to his shareholdrers at the annual conference call at the year end report. As far as the GM deal, anyone who belives Buffett is a long term hold type guy is simply misinformed. He didn't make his billions doing that, and the only time he holds long is his own companies, such as BRK, Lubrizol, and SantaFe/Burlington, which Berhsire now owns. He paid a premium in each of thos 2 buyouts as well. Why? In order to convince enough shareholders to sell. You can't buy if the shares aren't up for sale. You make a bid above what the current trading level is and you can buy large blocks. There is almost always a set time period for these bids and certainly a price range. Otherwise, the other investors will just hold, riding your price range and "maybe" sell at the last minute.
As far as the public never knowing when he divests himself of this stock, we most certainly will know. Trades of this size are required to be thru notice to the SEC, and thus to the public. You can look on several good websites and find all big trades for anygiven equity--especially inside trades, but not just inside trades. The only big "buy" since Buffett jumped on board was by David Topper--seen at the link above. When Buffett sells, it will show up on sites such as above as either "sold out" or "reduced" depending if he sold all or just part.
The slide continues:
GM: (yesterday's after hours close)
Berkshire 'B' shares common stock: (today's after hrs close)
Berkshire "A" preferred shares: (today's after hrs close)
IF, anyone thinks that an equity is a good worthy company just because Buffett buys it, then they must also think any company he drops is not. Yesterday it was reported, that Buffett divested Kraft Foods, Intel, and Viacom. Buffett is also on record as of May 5 2012 saying he would not invest in Google or Apple.
Thanks for that post Don, found it interesting. I'll tell ya, I've been too chicken to play in the last 2 months - Market has been nuts, sitting all in cash waiting for this slide to stop.
Yeah, the 2012 tech bubble correction is definitely underway--he will make $$ off this--he "almost" always does, but buying beaten down stocks is part of the business model.
Oh, before I forget again:
quote
originally posted by 82-T/A [At Work]
Obviously, he's doing this to help Obama because he very much believes in him... but at least he's investing in an American company. Personally, I would have preferred that he had purchased the Canadian and US government stocks from GM instead.
He can't. #1 he can't afford to after his BRK stock buyback--without doing some major divestitures of his own holdings. 2. He can't buy it at even the premium of $25/share because that would mean the US Taxpayer would lose over 50% of their investment, as the breakeven price is $51/share, and his BoD and shareholders in BRK wuld nail him to the wall over such a stupid move. 3. The team he agreed to put together after the CocaCola fiasco to look over his decisions would never allow him to make such a risky buy at $51/share. That pricing would mean that GM's fair value or book value would have to be higher than it ever has in it's entire history.
So Buffet just donated 256 to the Obama 2012 election campaign? Guess we know who's horse he is betting on, and this will no doubt will him favor from your communist overlord.
I think you should clarify that as your anoited communist marxist messiah overlord. I'm just saying...
[This message has been edited by Tigger (edited 05-18-2012).]
