Is Berkshire Hathaway (BRK) a Sell?!

bigdog posted on 07/20/10 at 08:01 AM

Here's a headline you don't read in the Journal every day: "Sell Buffett's Berkshire Hathaway?" In his Marketbeat Q&A, reporter Matt Phillips gets down to brass tacks with equity analyst Meyer Shields of Stifel Nicolaus, who slapped BRK with a big SELL sign recently. 

The reasons why are fascinating and more complex than you'd imagine. I don't want to spoil the WSJ read, which is pithy and worth checking out, but it amounts to a short-term sell rating. According to Shields, Warren's company has temporarily benefited from recent developments - like the inclusion of BRK in the S&P 500, which triggered a temporary buying bump. The company also stands to lose a bit of value due to some short-put options activity that puts the firm on the hook for certain payouts. 

Fundamentally, though, Shields notes that, as the U.S. economy's spending goes, so goes Berkshire Hathaway. The article summarizes the economic bad news like so: "Berkshire’s more exposed to homebuilding and less exposed to technology than the overall economy, but the bottom line is that if unemployment stays high, spending stays low, both for the U.S. in general and Berkshire in particular."

What's your take on ole Warren? Is his company that much of a bellwether for the economy at large? Given how reluctantly analysts usually are in issuing SELL ratings, however justified they may be, does BRK deserve one?


[image: Day 018/365 by pheaber on Flickr]

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Posted by bigdog on 07/20/10 at 08:01 AM

Comments

incubus posted July 20, 2010 (03:43PM)

A thread was posted in the forum on this.
It seems like anytime you look into the details of Buffet's valuation technique, you're committing a sin in some circles.

I only raised the question of his wisdom in buying GS, or any American "too big" bank in general, specifically in light of Meredith Whitney's perspective.

In looking at the extremes in which that specific sector has increased in market share and GDP over the last fifteen years, it just seems like the CDO tactic may have been a sign of the zealousness required to get much higher in earnings and market share for the sector.

This topic, as evidenced, can lead to relentless hours of debate, but I feel that the counterpoint to my point seems to simply boil down to "But Goldmans is incapable of not making money".

Though I understand the implied nature of the statement, Goldmans has a long standing history of being one of the best, I can't quite factor that into my overall view of the sector as a valuation technique in conjunction with my thoughts on the sector as a whole, and as far as P/E's are concerned, I already made the point that back in the 70's a P/E of 10 was considered outrageously high, while a P/E of triple that was insanely low in 1999.

I could go on and, regarding why I'd sooner favor regional banks, or Canadian/Brazilian financials, but my point is that I question whether Warren has lost touch with contemporary influences over valuations.

I think the world of Warren as a person. to be clear, but in this example I can't understand where he see's value in this example.

bigdog posted July 23, 2010 (08:51AM)

Sounds like you’re pretty well-versed in this topic, incubus, so I’m not about to gainsay your perspective. Your points about both Warren Buffett and Goldman remind me of that classic Wall Street disclaimer: “Past performance does not guarantee future results.” It’s always smart to re-evaluate stocks based on current conditions, even market giants like these two. Kudos for you for coming to your own conclusions!

Be Good,

Don

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