Berkshire Hathaway, Inc. (BRK-B)

#7) On May 21, 2009 at 9:32 AM, chk999 (99.99) wrote:

Ok, here's my pick. The basic thesis is two fold.

First, Berkshire is probably about as cheap on a price/intrinsic value basis as it has been in decades. You could have gotten it cheaper a bit ago, but this portfolio wasn't operating then. It is still an outstanding value at these prices.

The second reason is that Buffet has been able to deploy a bunch of cash recently at favorable terms. The Marmion purchase, the various prefereds with the equity kickers, helping fund the Mars deal, all these will be most profitable over the next few years. The put options he sold are really an insurance policy and I suspect will end up having been very good deals for Berkshire by the time they expire.

Finally, we are getting the greatest capital allocator running around basically for free. Capital allocation is one place where a lot of companies make mind boggling mistakes and destroy value instead of creating it.

This is not a short term pick. In any short period of time the market can be deeply irrational and the price of any stock can do just about anything. But over the long run the insane cashflow coming out of Berkshire makes it a winner.

Chris - long BRK-B and other outstanding companies

In my view, Berkshire is attractive from just about every possible angle you could view it.

IMO, Berkshire looks good from a top-down/macro/asset allocation perspective. My tactical asset allocation model has large-caps as more attractive then small-caps from both a valuation and momentum perspective (the S&P 500 has now outperformed the Russell 2000 over the past 3 and 6 months indicating a potential shift in momentum). Obviously, Berkshire is a large-cap so it is positive from that perspective.

Berkshire is also attractive in that it is a "defensive" stock. It is beyond the scope of this post, but I believe the probability that this cyclical bull market is nearing its end is increasing, and that the probability of a bear market occurring is high. Berkshire outperformed during the previous bear market of 2000-2002 and did particularly well during the horrendous year of 2002. Its huge cash position supports the notion that it should outperform in a bear market. I see it as a way to have your cake and eat it too. It is a de facto partial cash position without having to explicitly go to or raise cash levels.

Fundamentals-

1. There are numerous calculations to suggest that Berkshire is selling below its intrinsic value.

2. The current price to book ratio is still below the historical average and industry peers despite the fact that growth in book value per share is accelerating (1st half of 2006 was impressive). Historically, share price growth has tracked book value growth pretty well. From current levels, expansion in the P/B ratio seems significantly more likely then continued contraction of the past few years.

3. Excellent business and earnings momentum. 2nd quarter results were very strong.

Technicals- This is what a picture-perfect stock looks like from a technical perspective

http://stockcharts.com/gallery/?brkb

1. Upside breakout - New 52 week and all-time highs. There should be a lack of selling pressure on the stock.

2. Clear uptrend since the bottom of last fall. Just about every long-term technical indicator is bullish.

3. Strong relative price performance - The stock has outperformed the S&P 500 over the past 3 months, 6 months, and 1 year.

Sentiment and institutional factors -

1. Sell-side analysts and many institutions are still pessimistic, which from a contrarian perspective, is bullish. Potential future upgrades from the lemmings provide fuel for further upside price movement. Berkshire is under-owned in mutual fund portfolios. Their buying could drive the price upward if they begin to react to any upgrades or continued strong price performance.

2. Smart money/Strong performing mutual funds have substantial stakes in Berkshire. Fairholme has approximately 17% of its fund in Berkshire.

The primary negative is EVENT risk. Berkshire has tons of that. What if Buffett dies? How would the market react to that? What if this Hurricane season turns out horrendous and causes losses in the insurance segment? What if there are any further major scandals regarding insurance? In my view, all of these potential risks are completely overwhelmed by the positive factors.

In sports betting, when a team gets 'hot' or suddenly becomes 'popular,' what used to be a good team to bet on now becomes a bad one since everyone else is betting on it. The bookies price into the line that everyone now loves the team, and the line gets affected signficiantly.

I feel that a similar story is occuring with Berkshire. People's man crush on Buffet has catapulted the price of the stock, especially last year. The company and its stock price is getting too big for its own good.

Nope, I didn't click on the wrong pick selection...this was intentional. Can you believe it?

Does this even count as a pick? I hereby dub myself Captain Obvious.

With Birkshire I leave the heavy lifting to the greatest investor of our time for no money. I cannot imagine a better long term holding.

While many would say, "It's Berkshire and Warren Buffett, what more do you need to say?" The reality is that the gap between BRKB's intrinsic value and market price is larger in the undervalued direction than it has been in years. BRKB (and its more expensive big brother BRKA) is seriously undervalued right now. I feel so good about it, that I am using BRKB to "park" my money when I take it out of other stocks. Why? Well, I feel completely comfortable with my money being there if the market should close for 20 years.

Picking up some big, solid brands at bargain prices.

BRK is in transition at a time investors are seeking greater return as a premium for BRK's lack of yield. The stock is pricey, and the average investor can't purchase sufficient shares to make a difference when and if the stock moves up. Over the past several years, BRK has waffled and slipped. It's slow growth makes it a very long term play, and at a time when boomers are retiring,

While Berkshire owns a bunch of different businesses, at the heart of what it does is insurance. And a huge part of that is catastrophic insurance. So what happened to its earnings in q3 2005, after hurricane Katrina and I don't know how many others ravaged the SE United States -- Berkshire made a profit. Only a fifth of its usual profit, but a profit nontheless. It's rock solid.

There is no doubt that Berkshire is undervalued. The Katrina hurricane insurance claims did little damage, and the rest of the Berkshire portfolio continues to shine. There are positions in Coke, Washington Post, Geico, and more recently in foreign utilities. Valuation models clearly indicates Berkshire will grow, it is only waiting for the price to rise to meet its value.

Buffett's donation to Gates will increase liquidity of BRK.B, as his shares of A are turned into B shares. This will allow the market to influence the stock more, which will probably increase the price, since BRK is most likely underpriced at this point.
Also, increased liquidity will prompt the S&P to include BRK in its index, which will force institutional purchases, also pushing the price up.
Lastly, Buffett himself is now becoming a net seller of BRK, having been a net purchaser of BRK for all of his life. Instead of wanting a lower price, he will now see an opportunity for a rising price. Perhaps he will make statements that will encourage the market to see the underpriced stock for what it really is, instead of his cryptic remarks over the past few years.

Patience is a virtue ;-) ! This stock will continue to perform well after Mr. " B " has departed from us. Many fear that the stock will plunge at the time of his death.
Buffet took care that that wouldn't happen by giving his money to philanthropy .
If you'll remember the crash of "87" and
" 9-11" stocks plunged ; Hathaway didn't.
Another reason why it's called an " all weather stock ".

This stock isn't sexy anymore, so Wall Street stopped paying attention. But Warren and Charlie are still paying attention. And the teams they are acquiring just expand the reach of their core values, operating principles and discipline through the organization. This one is built for the long haul.

Berkshire Hathaway is a collection of cash-producing companies and other holdings. On average, the holdings are above average companies. If you ask me, a collection of above-average companies will tend to beat the S&P 500 over time. Would I own any of these stocks on my own? Probably not, since I invest primarily in micro caps. However, I do believe that Buffett chooses large stocks that are better than the S&P 500 in general.

While Berkshire Hathaway is too big to outperform by a ridiculous margin like it did in the past, I fully expect it to be able to beat the market by a few points a year for the foreseeable future. Buffett is not immortal, but he buys companies when he thinks he's paying a good price. Much of your returns come from the price that you can lock in when you buy.

I expect Berkshire Hathaway to outperform the S&P 500 by a small margin on average until someone else takes over and starts consistently buying garbage with its extra cash.

The hurricanes and the days of Buffett sitting on piles of cash seem behind us. I have suffered as an owner as the price of this stock was stuck in the mud. But the valuation has improved and it seems to be in the beginning stages of an upward move. It recently moved to near 3300.00 and I believe it has a good chance at making one to two more such moves within the next year.

Warren Buffett's company looks undervalued. The insurance business benefitted from last year's horrible hurricane season (being able to raise rates as others became more conservative), and the stock price may benefit is this year's continues to be quiet.

This stock needs no recommendation. If you do not know this one, you should not be on this site.

Although as per Crammer the picks by WB from the last 3 years have not beaten the market, in the long run, this is definitely a winner.

What's not to like? You get super-investor Warren Buffett, a robust insurance business, and gobs of other companies in many important industries, such as homebuilding, transportation, food, communication, etc.