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Six months ago I got all excited about "My pal Warren's" little company and decided it was due for another run when I posted Chasing Value: Berkshire Hathaway -- the time is now . Every investor who is in the market for a while gets to know some companies better than others and this is one I own and have been following for some time. This stock is a Triple-A, large cap that has trounced most everything else for quite some time. However, what suprises me and allows me to make money on it is the frequency with which Wall Street under-appreciates Mr. Buffett and under-values his company. The following is an excerpt from the June post.
- 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.
In August when things were becoming a little more dicey I posted Serious Money: Safe havens -- T-Bills or Warren Buffett? stimulated by the notion that T-Bills had very limited value. Shareholders and long time Berkshire watchers are well aware of the stock pattern for BRK.A / B, it trades in a very tight range for several years while all the while it's earnings are growing, P/E shrinking, and shareholder equity and book value build-up becoming more tempting until the cork pops off the bottle. On June 11, 2007 when I started ranting about the opportunity you could have bought "B" shares for $3,612. Yesterday it closed at $4,905 for a six month gain of 35.8%, or you could have accepted about 2.4% on the T-Bill over the same period -- "guaranteed".
The following updated data from AOL Money & Finance shows the price to earnings ratio has stretched going from below the market average to above, albeit for a higher quality product. The price to sales and book still indicate value and the last report on earnings was 64% growth.
Does Berkshire Hathaway have any near term growth left before it starts to settle down again? I think the answer is yes and with about $40 billion in cash and short term investments, Mr. Buffett has a lot more walking around money than anybody else. It is amazing that the company was able to grow earnings as it has with over 20% of it's value in cash dragging on it.
I have included Berkshire for consideration in my 2008 shortlist Holiday shopping? Buy stocks, not clothes: searching for 8 for 2008, but as it goes up it is a little less likely to make the cut. If you are considering buying this stock, I would wait for some pull back. I am not an advocate for buying at all time highs -- but watch it you must!
To verify my track record, including bad calls, read Chasing Value and Serious Money.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm.
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Reader Comments (Page 1 of 1)
12-07-2007 @ 11:56AM
Dave Martin said...
I slightly dispute the headline: "BRK did what it is supposed to do--go up!" Instead of saying: "Go Up, I would have said: "Increased Profits." Or: "Mr. Market will eventually recognize that the stock price of BRK under-values the rates of earnings & growth."
I'll admit that your headline reads much better, but if one is splitting hairs, it is not quite accurate.
I had greatly increased my investment in BRK-B too, and for reasons similar to yours. I had done so about three months prior to June 11th.
Best Wishes, Dave
12-07-2007 @ 7:35PM
Bryan said...
I've bought into BRK.B this January and have appreciated the gains. I'm interested in expanding my position. At what price point does this become attractive to add more too?
12-07-2007 @ 12:37PM
Sheldon L said...
Bryan,
Looks like you don't need my advice. You made a good buy last January. They used to say "no one ever got fired for choosing IBM"...well no one ever lost money buying Berkshire (unless they were shorting the stock for an extended period) so I don't think there is much downside if you added to your position now. However, I never tell people what they should do, only what I would do with my money at my risk.
For myself I would not be buying today, as I stated in my post because it's at an all time high. It has made the best one year run in quite some time and a part of that is because of the shakey financial markets. I do not chase stocks, I bide my time waiting for an opportunity.
I also stated I would wait for some pull back. I just checked the market and BRK>B has reached $5,000. You may find you will get that chance in January again.
12-08-2007 @ 1:49PM
Living off dividends said...
After watching it for a year, I finally took the plunge last week and saw a 5% gain in less than 7 days!
not something you'd expect from a ultra-large cap!