Author Topic: BRK MELT UP ahead ? potential drivers:  (Read 2769 times)

Valuehalla

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BRK MELT UP ahead ? potential drivers:
« on: September 28, 2017, 02:53:24 AM »
IMO there are aspects which could soon cause a heavy Melt Up for Berkshire:

1) The Tax Reform
    - reduced deferred taxes will increase the BV app. 10 %
    - FCF will increase, because operative gains will be taxed lower

2) The existing cash pile of more than 100 B 
      - could lead to a mighty acquisition - up to 80 B -  maybe plus additional funds from 3G, KHC, BUD, QSR
      - depending on the details, this could increase the operating profit of BRK
         if 80 B are invested for just (!) 5 % this will increase the operating profit from 20 to 24 = 20 % increase!
      - could lead to an adjustment concerning the stock repurchase program

3) A broader market set back
    - maybe caused by TECHs / FANG: BRK could start a big wide range shopping

4) A heavy damage for the broader insurance businesses
    - after which strong BRK will exit in a better position than other weaker competitors

In case of a lucky quarter we can see a melt up of 40 % till end of 2017. (Taxreform + Acquisition)

« Last Edit: September 30, 2017, 05:44:18 AM by Valuehalla »
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Dynamic

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Re: MELT UP ahead ? potential drivers:
« Reply #1 on: September 29, 2017, 08:30:31 AM »
The long term focus and patience - and the acceptance of lumpy profits or profits that don't get reported on the bottom line, has often seen a boost to Berkshire's true underlying future prospects when all seems doom and gloom for many other companies.

I would tend to anticipate 1 and 4 may add noticeable value in the next year or two, and be very unsure of the timing of events in 2 and 3.

Anyone who has held or watched BRK for a decade or more may recall a number of such occasions:

1. I'm not aware of any major US Corporate Tax Reform in the last couple of decades, but it could provide a one-off boost to the visible figures fairly soon and provide more tax-efficient flexibility in capital allocation depending on the specific details of the reforms.

2. Large cash piles turning into a huge deal has certainly happened many times, BNSF and Heinz being the biggest to date, and PCP being fairly significant, and numerous great deals during market or financial meltdowns (e.g. BAC 6% preferred+$7.14 warrants and other 'shows of belief' to repair balance sheets of sound enough companies or to provide funding for takeovers - e.g. Mars), but I wouldn't care to guess when the elephant gun will next be fired - I could see it taking anything from next week to 3-4 years before a huge acquisition putting $40-100bn of BRK cash to use, depending on whether lofty market valuations and low interest rates persist and keep more companies priced a little too richly compared to BRK's willingness to pay.

3. Again, I'd be less inclined than I guess you might, Valuehalla, to guess that a crash is imminent, though like you I hope it is, but we saw good value purchases after the dot-com/Y2K bubble burst and brought more valuations into sensible or cheap territory.

4. It could possibly happen this year or next if the hurricane season causes sufficient insured damage within the US. I've welcomed in the past, expectations of a 'hardening' market for reinsurance after megacats like hurricanes, giving at least a few years of rates where BRK can write a lot of reinsurance business at sensible prices and make up for the reduction in the current year's profits. Over the years we've also seen opportunities like taking on long-tail risks from distressed Lloyds Names, getting a long time to invest the float before paying out claims in future currency. I always feel that BRK is best prepared for the storm in terms of financial strength, underwriting discipline and risk limitation and can be opportunistic in picking up the pieces after the damage of statistical clustering hits its poorly-incentivised competitors.

I'd be happy to see a large acquisition tomorrow, or a broad market setback that makes prices more attractive.

Regarding the coming market crash, I read, I think it was the Semper Augustus letter about the thinning market, where only a handful of TMT stocks accounted for the index gains before the dot-com bubble finally burst. This time it seemed to be mostly the FANG stocks, but the imminent crash doesn't seem to have followed just yet. I liked their ideas and reasoning and thought it was plausible and worth making their clients aware of, but I just can't seem to predict when highly optimistic valuations will suddenly turn more realistic across the broader market. This market doesn't feel like the go-go year 2000 where everyone says they're making so much in tech stocks.

Valuehalla

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Re: BRK MELT UP ahead ? potential drivers:
« Reply #2 on: October 02, 2017, 01:22:02 AM »
+++++++++++ UPDATED ++++++++++

There are aspects which could soon cause a massiv increase in BV or a massiv increase of the operating profit.

I think there is a high probability to see a Melt Up concerning the stock price soon:

1) The Tax Reform
    - reduced deferred taxes will increase the BV app. 10 %
    - in awareness of the repurchase program, an increase of BV shall drive the stock price immediately
    - FCF will increase, because operative gains will be taxed lower

2) The existing cash pile of more than 100 B 
      - could lead to a mighty acquisition - up to 80 B in standby -  maybe plus additional funds from 3G,
         KHC, BUD, QSR and / or leverage  ... the dream of a 250 B elephant could come true ....
      - depending on the details, this could increase the operating profit of BRK massivly
         if 80 B are invested for just (!) 5 % this will increase the operating profit from 20 to 24 = 20 % increase!
      - could lead to an adjustment concerning the stock repurchase program, which will also drive the stockprice

3) Higher interest rates
- 1 % higher interest rates means 1 B or slightly more profit on the 100 B: that s an increase of 5 % concerning
   a profit of app. 20B now
- Competition in insurance business will get more soft, higher prices could be realized

In the medium or long term:

4) A broader market set back
    - maybe caused by TECHs / FANG: BRK could start a big wide range shopping. 1 year after the 1th Feb 2000
      when the last bubble busted, BRK nearly doubled and TECHs were defeated. Will we see a DejaVu ?

5) A heavy damage for the broader insurance businesses
    - after which strong BRK will exit in a better position than other weaker competitors, higher prices could
      be realized

 ;D In case of a lucky quarter we can see a melt up of 40 % till end of 2017. (Taxreform + Acquisition)  ;D
« Last Edit: October 02, 2017, 05:31:55 AM by Valuehalla »
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Valuehalla

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Re: BRK MELT UP ahead ? potential drivers:
« Reply #3 on: December 01, 2017, 05:37:10 PM »
I like call attention to an article, published in Jan 2017

https://seekingalpha.com/article/4037907-berkshire-hathaway-potential-95-billion-book-value-growth-year-end-2017

If taxreform pass with 20 % corporate tax, we will get app 35 to 40 B in deffered tax reduction, which will increase the BV (End of Q3 2017 308,257 B) by app 12 %
« Last Edit: December 01, 2017, 05:49:17 PM by Valuehalla »
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Valuehalla

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Re: BRK MELT UP ahead ? potential drivers:
« Reply #4 on: December 04, 2017, 07:40:27 AM »
Here we go !  8)

Where is the elephant?
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BG2008

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Re: BRK MELT UP ahead ? potential drivers:
« Reply #5 on: December 04, 2017, 07:56:45 AM »
Valuehalla, nothing against you personally.  I get a chuckle when the world meltup is used on a value blog.  I wouldn't be surprised if the price action agrees with you. 

scorpioncapital

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Re: BRK MELT UP ahead ? potential drivers:
« Reply #6 on: December 04, 2017, 08:30:57 AM »
meltup is value when inflation runs rampant. If it didn't , even a slow rise would actually be a big loss.