General Motors' (GM, Financial) stock is seeing significant interest from fund managers off late. Last quarter, two of the Wall Street's savviest investors, Warren Buffett (Trades, Portfolio) and George Soros (Trades, Portfolio) increased their stake in the company. Warren Buffett (Trades, Portfolio) now holds 41 mn shares of the company while George Soros (Trades, Portfolio) holds ~3.86 mn shares and more than 1 mn call options. Other notable investors who bought shares of the company last quarter includes Ken Heebner (Trades, Portfolio), Ken Fisher (Trades, Portfolio) and T Boone Pickens.
The company's business is improving and it has now been profitable for 20 consecutive quarters. Last quarter, GM's business delivered strong core operating performance with almost all key operating metrics including global deliveries, net income and adjusted EBIT improving. The company's adjusted EBIT was $2.4 billion for the fourth quarter, a $500 mn improvement over the prior year. Adjusted EBIT margin was 6.10%, up 140 basis points from the fourth quarter of 2013. Net income to common shareholders was $1.1 billion, up $200 mn compared to prior year period and earnings per share improved to $0.66 versus $0.57 of prior year.
Geographically, in North America, the company benefited from record average transaction price driven by Cadillac, new Chervolet, GMC truck and SUV. In China, the company's sales continue to outperform the market while in Europe, Opel's strong operating performance helped the company.
The company is expecting even stronger operating performance in FY2015. For FY2015, management is expecting adjusted EBIT and adjusted EBIT margins to improve in all automotive regions. For FY2016, the company's target is to reach 10% adjusted EBIT margins in North America, profitability in Europe and maintaining strong net margins in China.
The company is passing of benefit of this strong performance to its shareholders and intend to raise its common stock dividend 20% to $0.36 per share from second quarter of the current year. A significant share buy-back may also be in the offing if the recent activist campaign of Harry Wilson against General Motors management is successful. Wilson is backed by hedge fund managers David Tepper (Trades, Portfolio) of Appaloosa Management, Kyle Bass (Trades, Portfolio) of Hayman Capital Management as well as firms such as HG Vora and Taconic Capital. Together these four investors own ~2.1 percent of General Motors' shares. Wilson knows the auto business well and was tapped by President Barack Obama to restructure GM in its U.S.-backed bankruptcy in 2009. He intends to nominate himself for a seat on the board of General Motors Co. and propose an $8 billion stock buyback. At current valuations, this amounts to 13.33% of General Motor's outstanding shares.
General Motors is trading at 8.22 times FY2015 EPS. The company has an attractive dividend yield of 3.20%. Out of 19 analysts covering the company 11 are positive and have buy recommendations, six have hold ratings and two have sell ratings. The company's improving performance is attracting attention of some of the most successful fund managers who are buying its shares. I believe General Motors offers a good value at the current levels.
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