This Company Has Bought $16 Billion of Its Own Stock -- Should You?

Key Points

• Shares of General Motors trade at a paltry 9 times earnings.

• The Detroit automaker has reduced its cost base by billions.

• GM has repurchased a substantial amount of its own shares.

• 10 stocks we like better than General Motors ›

It's challenging to find diamonds in the rough in the markets, because investors are smart and investment knowledge is everywhere. But one such opportunity exists in the least likely place for investors to look: the automotive industry.

That's right, the industry that was brought to its knees during the Great Recession has produced a leaner, meaner, and much more capable company in General Motors (NYSE: GM). Here's why it deserves your consideration.

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Not your old GM

Gone are the days when General Motors had to overproduce unwanted vehicles to try to cover its high labor costs. If investors remember, and nobody would blame you for wanting to forget, over a decade ago the Detroit automaker was forced to overproduce vehicles to cover labor costs and without buyers lining up, it was forced to dump the vehicles into rental fleets which destroyed residual values and brand image.

Fast-forward to today, and General Motors is competitive in every single market segment it has entered, and has reduced its cost base by $2 billion across 2023-2024, with more likely on the way in 2025 once the calendar year is in the books.

Image source: General Motors.

In fact, General Motors' focus on reducing its cost base has drastically lowered its breakeven point to U.S. industry sales of roughly 10 million to 11 million vehicles, assuming it maintains its market share. Its ability to reduce its cost base so significantly also enables the company to reduce its U.S. incentives as a percentage of its average transaction price, which remains below the industry average and supports company margins.

The market has failed to realize the incredible change General Motors has undergone over the past two decades, so what's a company to do in this situation when nobody sees the potential? Put your money where your mouth is and buy back stock -- and GM has done this by the truckload.

GM data by YCharts

This graph is a beautiful one, because it shows exactly how far General Motors has come in terms of repurchasing its stock. You can see the dramatic drop off of shares outstanding, and better yet you can see the stock price responding in a positive fashion, soaring over the past 18 months as shares outstanding plunged. General Motors has announced $16 billion in share buyback programs since 2023 -- a staggering amount in such a short time frame.

GM's focus on returning value to shareholders doesn't stop with share repurchases. Just earlier this year GM not only initiated a brand new $6 billion share repurchase program, it upped its quarterly dividend by 25%.

"The GM team's execution continues to be strong across all three pillars of our capital allocation strategy, which are to reinvest in the business for profitable growth, maintain a strong investment grade balance sheet, and return capital to our shareholders," said GM CEO Mary Barra in a news release.

Is it a buy now?

General Motors has turned into one of the most balanced, competitive, and profitable automakers in the market. This is not the GM of old, and it continues to prove that despite the market's unwillingness to give it the valuation it deserves. General Motors shares currently trade at a very modest 9 times earnings, but savvy investors should look at the company's focus on returning value by reducing its shares outstanding while leaving the door open for further increases to its dividend.

GM is buying its shares, and you should consider a small position as well while the markets aren't favoring automakers in the face of tariff uncertainty, the transition to costly EVs, and a surge in Chinese competition.

Should you invest $1,000 in General Motors right now?

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Daniel Miller has positions in General Motors. The Motley Fool recommends General Motors. The Motley Fool has a disclosure policy.