Wednesday, March 7, 2012

Buffett Mystique Hasn't Boosted Berkshire

I’m a few days late getting to this. I think a key to keep in mind is that Buffett thinks Berkshire is significantly undervalued and willing to buy back shares at any price below 1.1x book value.

Warren Buffett's towering stature among investors hasn't translated into big gains for Berkshire Hathaway stock.

That could change because Berkshire's class A shares (ticker: BRKA) look unusually attractive trading around $118,000, down 7% in the past 12 months, trailing the 5% gain in the Standard & Poor's 500 in that span and little changed over the past five years. The class B shares (BRKB)—each worth 1/1,500th of an A share—fetch 79.

The company's book value continues to grow and may hit $105,000 by the end of this quarter, boosted by earnings and gains in its big equity portfolio, which totaled $77 billion at year end. Book ended 2011 just below $100,000 a share.

Berkshire fetches little more than 1.1 times our estimate of current-quarter book value, which is the level at which it stands ready to buy back its stock, backed by $33.5 billion in cash. "Probably the last time the stock was such a laughingstock was in the spring of 2000," says David Rolfe, chief investment officer of Wedgewood Partners, a St. Louis firm that owns Berkshire. "You'd be hard-pressed now to find a more attractive blue chip." Back in 2000 at the height of the tech bubble, Berkshire briefly dipped to about $40,000.


Related previous posts:

T2 Partners: An Analysis of Berkshire Hathaway

Warren Buffett's 2011 Shareholder Letter