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Ignoring the Facebook IPO, Buffett casually invests in GM

People today were excited and geared up for the Facebook IPO, but everyone seems to have missed an important move by the “Oracle of Omaha,” aka Warren Buffett, as he invested a considerable sum into General Motors.

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According to The Detroit News Warren Buffett bought almost 10 million shares of General Motors stock through his company, Berkshire Hathaway, during the first quarter of this year. (In case you don't know, Warren Buffett is widely considered one of the greatest institutional investors of all time. Probably even “The Greatest!”)

This makes Berkshire Hathaway the 15th-largest investor in General Motors. Warren Buffett is known for “value investing” and has made many right calls over the years.

Dan Akerson, General Motor's CEO described Buffet as a "wise investor" on Wednesday. He also emphasized that he has a "track record to prove it."

The stock eventually ended the trading day on Wednesday at $21.91 per share up 2.29 percent. A impressive gain of 49 cents after Buffett's Berkshire Hathaway disclosed the buying of GM shares. Shares of GM ended trading week today at $21.18.

"It's a great vote of confidence in what we've done and what we hope to accomplish," said Akerson in an interview with The Detroit News regarding Buffett's investment into GM.

Even though this is a good vote of confidence for GM and the company's stock, it is important to note that when the company had an initial public offering back in November 2010, after emerging from bankruptcy aided by the government, shares were priced at $33 per share.

GM's closing value this week of $21.18 is more than a third less than the IPO price. This still concerns some investors. What concerns them even more is the US Treasury Department is still a majority stockholder in the company. This is due to GM receiving a $50 billion dollar infusion of bailout cash back in 2008, which was funded by taxpayers via the US Government.

The US Treasury Department thus still owns 32 percent (500 million shares). This is leads some to call GM by it's nickname of “Government Motors.”

There is little chance the Treasury Department will be eager to sell GM shares anytime soon, as the stock price would have to be around $53 or more for the government to break even.

GM's stock price would have to more than double in value. Most analysts on Wall Street doubt GM will hit that price in the near future as the European debt crisis is decimating cars sales in Europe.

The Obama administration is especially not interested in selling GM stock, at this is an election year. Selling the stock at a loss would indicate that the bailout was not as successful as the administration claims.

Analysts feel that Buffett's investment in GM will pike others to consider the stock and boost confidence for the company and possibly the Detroit Three as a whole.

Ford looks like an even better automotive stock pick at the moment, as the Price-to-Earnings ratio is around 2 and their Earnings-per-Share are $4.75. Ford closed trading for the week at $10.01 per share.

Even Buffett has made bad investments choices throughout his career. This includes recently investing in ConocoPhillips and betting the housing market would turnaround, which it has to do fully.

Still it will be interesting to see what “The Oracle of Omaha” does next with his money.

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Anonymous (not verified)    June 1, 2012 - 6:51PM

this is the guy that said his secretary paid more taxes than he did and then to find out gm didnt pay any taxes on their profits after taking tax payer funded bailout money then he's gonna buy gm stock....and we ask whats wrong with america.