Berkshire (BRK-A) Remains Undervalued and That Bugs Buffett
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Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B) Class A stock is by and large the highest priced equity on any stock exchange, anywhere. At well over $100,000 each, Berkshire shares trade for a) twice the cost of an average single-family home in the Midwest, and 2) nearly 60 times the next most-expensive stock (in this case, Seaboard (AMEX: SEB), at $2,000 each).
Despite CEO Warren Buffett's moves into more structurally sound investments like railroads and, more recently, Lubrizol, the Street is just not giving too much love for the venerable investment guru or his company.
The WSJ noted Berkshire shares go for just 1.1 times its book value, about 32 percent less that the average valuation of 1.6 times its had over the last few decades. Shares fell by 4.7 percent in 2011 and have just gained half of what the S&P 500 has since the onset of 2012, but what else could be plaguing the stock?
Many fingers point to lack of a succession plan. Buffett, at 81 years old, has no plans to step down anytime soon. However, Berkshire holders are a fickle bunch and believe there are few leaders out there who could replicate Buffett's buying expertise.
Another caveat is the transition of shareholder; instead of loyal investors with a long-term view, the recent equity offerings made to help pay for acquisition have brought in institutional investors and mutual funds which may have a shorter-term time frame. This isn't how Berkshire runs, of course. Over the near-term, Berkshire appears to struggle and struggle...but eventually that slow-growth model ends up outpacing markets more times than not.
Of course, $160 billion in assets makes it tougher to experience rapid growth when compared with companies with much smaller assets.
Not everyone is convinced that shares are undervalued, however. With a large chunk of Berkshire's investments in insurance, it's tough to value the stock based on a simple P/E ratio because the economics of the insurance holding won't be known for many years, noted the WSJ.
Buffett sees it differently, however, with Berkshire instituting its first-ever stock buyback plan last year to bring up the value of the shares. Since then, shares have risen 19 percent to just above where Berkshire will buy them.
Overall, the WSJ pointed out there hasn't been a five-year period in which Berkshire underperformed the S&P 500.
Investors will be anticipating Buffett's annual letter, scheduled for release Saturday. Shares are flat ahead of the bell Friday.
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Despite CEO Warren Buffett's moves into more structurally sound investments like railroads and, more recently, Lubrizol, the Street is just not giving too much love for the venerable investment guru or his company.
The WSJ noted Berkshire shares go for just 1.1 times its book value, about 32 percent less that the average valuation of 1.6 times its had over the last few decades. Shares fell by 4.7 percent in 2011 and have just gained half of what the S&P 500 has since the onset of 2012, but what else could be plaguing the stock?
Many fingers point to lack of a succession plan. Buffett, at 81 years old, has no plans to step down anytime soon. However, Berkshire holders are a fickle bunch and believe there are few leaders out there who could replicate Buffett's buying expertise.
Another caveat is the transition of shareholder; instead of loyal investors with a long-term view, the recent equity offerings made to help pay for acquisition have brought in institutional investors and mutual funds which may have a shorter-term time frame. This isn't how Berkshire runs, of course. Over the near-term, Berkshire appears to struggle and struggle...but eventually that slow-growth model ends up outpacing markets more times than not.
Of course, $160 billion in assets makes it tougher to experience rapid growth when compared with companies with much smaller assets.
Not everyone is convinced that shares are undervalued, however. With a large chunk of Berkshire's investments in insurance, it's tough to value the stock based on a simple P/E ratio because the economics of the insurance holding won't be known for many years, noted the WSJ.
Buffett sees it differently, however, with Berkshire instituting its first-ever stock buyback plan last year to bring up the value of the shares. Since then, shares have risen 19 percent to just above where Berkshire will buy them.
Overall, the WSJ pointed out there hasn't been a five-year period in which Berkshire underperformed the S&P 500.
Investors will be anticipating Buffett's annual letter, scheduled for release Saturday. Shares are flat ahead of the bell Friday.
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