"Though the past year has been tough for Warren Buffett, we still like Berkshire Hathaway (NYSE: BRK.B), which we believe is well-positioned for the year ahead," says Paul Tracy.
In his StreetAuthority Market Advisor, he looks at the holding company which is a position in his "undervalued gems" model portfolio. Here's his review.
"For only the second time in the investment-based company's 44 years, Buffett saw the book value of Berkshire drop. Of course his book value decline of 9.6% should be put in context with the 37% loss incurred by the S&P 500.
"Credit rating agencies Moody's and Fitch both downgraded Berkshire's "AAA" credit rating and S&P is looking to do the same.
"And just for a little salt in the wound, Buffett was bumped out of the top spot on Forbes' list of the world's richest people, unseated by Bill Gates.
"In his annual letter to Berkshire shareholders, Buffett was candid about both his mistakes and successes in 2008. Of his mistakes, he listed taking a position in ConocoPhillips when oil and gas prices were near their highs.
"Of his successes he was pleased to lock in double-digit yielding fixed-incomes securities issued by Wrigley, Goldman Sachs and General Electric.
"Looking over Berkshire's holdings, Buffett should feel guardedly optimistic about the current year. Berkshire's utility and insurance groups should continue to deliver outstanding results.
"Along with its fixed-income securities, BRK-B also received equity warrants -- and the Goldman Sachs warrants are already flirting with profitability.
"Key holding, Wells Fargo didn't escape the banking sell-off. But it was far more aggressive in writing off bad assets than its peers and it looks to emerge as one of the strongest in the industry.
"Buffett does have a few challenging holdings. Shares of American Express are still having trouble finding the bottom as the company contends with rising credit card delinquencies.
"Korean steel maker POSCO will ultimately benefit from infrastructure spending in China, but steel prices are still continuing to decline -- down more than -50% off their July 2008 high.
"Another minor headwind for Berkshire is marginally higher borrowing costs. Although Moody's and Fitch only lowered Berkshire's "AAA'- rating down by a single notch, the loss of its pristine credit rating will slightly increase the rate at which Berkshire can secure credit.
"Buffett may be disappointed with last year's results, but we still feel that beating the S&P by more that 25 percentage points is nothing to be ashamed of. On par, Berkshire's portfolio looks well-positioned for the year ahead. We will continue to like BRK.B at current prices."
Steven Halpern's TheStockAdvisors.com offers a free daily overview of the favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.
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