Score a Great Deal During Memorial Day Sales -- Savings Experiment
Don't Worry About Today's Retirees: Boomers Are Fine, (but Gen X…Ooooh yes, Berkshire Hathaway (NYSE: BRK.B) is a value, and it will be all the more so if this market takes a summer swoon, or global markets shift, or big caps take the lead. If you are just starting out and want to have a diversified solid foundation, this is a good stock to start with. You will also be a part of a special club receiving the golden words of Buffett in the annual report, although they are on the BRK website for all to see already.
Buffett will not be able to turn BRK.A or B into a 10-fer or a 5-fer over the next few years, but he can beat the overall market, and if he does it again it would surprise no one. According to AOL Money & Finance, this stock has a P/E three points below the DJIA, a low enough P/S and P/B that would make it pop-up on all my stock screens (except that I want dividends so it never has), consistent expansion of its ROE, and low debt -- and that spells value to me.
- Price-to-earnings P/E: 14.92 (TTM)
- Price-to-sales P/S: 1.71 (TTM)
- Price-to-book P/B: 1.55 (TTM)
- Price-to-cash-flow P/CF: 14.03 (TTM)
- Return-on-equity ROE: 11.02 (TTM)
- Long Term Debt-to-Equity (MRQ) 0.3
- Dividend Yield 0.0%
This five year chart is indicative of a pattern with BRK.B (B-Shares are almost affordable, A-Shares are not) where the stock trades in a tight range, moves up to catch up with earnings and equity expansion and then trades within a tight range for a few more years. My rationalization for this is that the stock is as boring as Buffett's acquisitions (his famous words) and because of its high share price, low trading volume (it does not even meet S&P threshold for inclusion) and lack of startling press releases, there is always a time lag between the build-up of equity and the market's appreciation of same. However, at the first sign of market weakness this safe haven may jump off the $3600 share price it has been straddling for almost a year.
While Berkshire Hathaway does not pay a dividend, all of its public holdings do. It is the largest shareholder (or among the largest) in American Express (NYSE: AXP), Coca-Cola (NYSE: KO), ConocoPhillips (NYSE: COP), H & R Block (NYSE: HRB), Johnson & Johnson (NYSE: JNJ), PetroChina Co Ltd ADR (NYSE: PTR), Procter & Gamble (NYSE: PG), United Parcel Service (NYSE: UPS), and Wells Fargo & Co. (NYSE: WFC). It is also among the largest insurers in the country owning Geico, General Re, and others generating piles of cash and cash float for Buffett to invest. Last but not least, Berkshire owns outright many companies that are household names, acquired on favorable terms that are generating strong cash-flow -- like See's Candies, Dairy Queen, Shaw Carpeting -- and all this together makes BRK resemble a mutual fund of sorts with all the protection that diversity brings.
If Berkshire Hathaway is not a bargain today, then I do not know when it will be. It would surprise me greatly if it moved much closer to book value and they just gave it away. The BRK.B shares closed at $3,612.00 Friday June 8, 2007.
Those of you who are new to BloggingStocks can check out my other stories and read Chasing Value or Serious Money to find more potential opportunities and verify my track record as well. Disclosure: I own shares in BRK.B, COP, JNJ, PTR, and UPS as of this writing.
Sheldon Liber is the CEO of a small private investment company and the vice president for design and research at an architecture & planning firm. Check out his other posts for BloggingStocks here.
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Reader Comments (Page 1 of 1)
6-11-2007 @ 4:14PM
GemmaStar said...
I suspect that BRK/B could go lower. If so, it's a good idea to buy and hold.
Like you, I've found that BRK/B stays steady at a certain price. Since one is not paid to wait (i.e., no dividends) I'd like to wait for BRK/B to go down lower. Once it does, it tends to slooooooowly go higher. But it's worth the ride. In mid-April '06 BRK/B was below $2,900. At today's price, it's a 25% ride in a shade over the year.
6-11-2007 @ 5:48PM
Sheldon L said...
GemmaStar,
I preach caution about timing the market. While you wait for it to go down some and get in at the "perfect" price, you could get left behind. In the long run will it matter that much?
Thanks for adding your comments.
6-12-2007 @ 7:48PM
Rich said...
I own a few shares of the B class stock and would buy more if only BK would pay out some sort of a dividend. I like Warren and Charlie but if they live into their upper 90s (which I think that both of these tough old ducks will), I and my kids will starve waiting.
6-13-2007 @ 9:25AM
Bill said...
Another way to play BRK, at a much more reasonable price, and get participation in several other similar situations, like BAM, LUK and SHLD, is to invest in the Fairholme Fund. FAIRX is a concentrated mutual fund, with about 17% of its assets in BRK. IT has a phenominal track record over the years, and Morningstar says very good things about its governance.