Author Topic: berkshire - cheap?  (Read 71914 times)

shalab

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Re: berkshire - cheap?
« Reply #320 on: January 19, 2019, 03:31:52 PM »
Ok - remove Geico. Add manufacturing and service - 10 B income with 15% growth. Put a multiple of 15 on pre-tax earning (after tax 19) - market value 150B.

So - we do the same calculation without Geico.

BNSF - 100B
Manufacturing and service -  150B
BH Energy - 60B
Total: 310 B

net value 205B - 310 B = -105B

This is not counting Q4 which I expect Q4 to generate another 7-8B in cash.

WEB and Munger do buyback at 207. It is safe to say no one understands BRKA valuation better than these two gentlemen. My son and I did some calculations last week, looks cheap even today.

market cap: 500B
Look through stock portfolio (Q3): 180 B
Cash and short term: 115 B
net value: 205 B.

BNSF: 100B (comp UNP)
Geico: 50 B (comp PGR)
Berkshire energy: 60 B (comp Duke energy)

Total: 210 B

Net value: -5 B

Remaining businesses are for free.


   
You are double counting geico cash and investments. Cheap, but not that cheap.


longinvestor

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Re: berkshire - cheap?
« Reply #321 on: January 19, 2019, 03:50:04 PM »
May the sentiment “cheap but not that cheap “ prevail until they buy back $100 B + worth.

There’s an interesting topic on why value investing doesn’t seem to work anymore. BRK itself being a value play is a more interesting topic. Or most boring 😉

Gregmal

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Re: berkshire - cheap?
« Reply #322 on: January 19, 2019, 05:28:13 PM »
Precision Castparts and Lubrizol are another $50B or so of easily identifiable value.

I would also value the stock portfolio on a liquidation basis, which must account for their tax liability which in many cases, comes from a very low cost basis.

rolling

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Re: berkshire - cheap?
« Reply #323 on: January 20, 2019, 03:33:54 AM »
May the sentiment “cheap but not that cheap “ prevail until they buy back $100 B + worth.

There’s an interesting topic on why value investing doesn’t seem to work anymore. BRK itself being a value play is a more interesting topic. Or most boring 😉

Yep, I sure hope so. I said, cheap but not that cheap but nevertheless I recently re-re(...)-entered at 196...It is currently my 2nd biggest position in my 3 stock portfolio (I am thinking of increasing to 4 stocks...)
My usual portfolio: Highly concentrated (up to 3 or 4 positions) in smallcaps and microcaps.

plato1976

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Re: berkshire - cheap?
« Reply #324 on: January 20, 2019, 06:20:35 AM »
Isn’t cast precision part of the manufacturing ? Double accounting?

shalab

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Re: berkshire - cheap?
« Reply #325 on: January 20, 2019, 10:08:57 AM »
Let us bring back Geico with 30 B valuation as opposed to 50B - Buffett has said that 20B is the emergency cash that is needed to run all the insurance ops.




BNSF - 100B
Manufacturing and service -  150B
BH Energy - 60B
Total: 310 B

net value 205B - 310 B = -105B
Geico => 30B
net value = -135 B

You get financial products and other operating insurance subs for free.
« Last Edit: January 20, 2019, 10:15:13 AM by shalab »

Viking

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Re: berkshire - cheap?
« Reply #326 on: January 20, 2019, 11:19:12 AM »
It will be very interesting to see what they have done with the $100 billion in cash in Q4.

I think the most likely meaningful stock purchases are JPM and AAPL (however, the downside with Apple is it is already such a large part of BRK that it now influences the price of BRK; i am sure Buffett does not want the price of BRK to be too closely tied to fortunes of AAPL).

An update of buybacks will also be good.

If it has simply grown by another $7-8 billion (with no meaningful purchases) that will be disappointing. Although i think it is fair to say winter is coming and stocks and businesses will likely be going on sale at some point in the next 12-24 months (perhaps fire sale).

John Hjorth

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Re: berkshire - cheap?
« Reply #327 on: January 20, 2019, 11:48:24 AM »
May the sentiment “cheap but not that cheap “ prevail until they buy back $100 B + worth.

There’s an interesting topic on why value investing doesn’t seem to work anymore. BRK itself being a value play is a more interesting topic. Or most boring 😉
It will be very interesting to see what they have done with the $100 billion in cash in Q4.

I think the most likely meaningful stock purchases are JPM and AAPL (however, the downside with Apple is it is already such a large part of BRK that it now influences the price of BRK; i am sure Buffett does not want the price of BRK to be too closely tied to fortunes of AAPL).

An update of buybacks will also be good.

If it has simply grown by another $7-8 billion (with no meaningful purchases) that will be disappointing. Although i think it is fair to say winter is coming and stocks and businesses will likely be going on sale at some point in the next 12-24 months (perhaps fire sale).

Today is actually the first day this year, that I visited Semper Augustus Investments Group LLC, to see if there were new Berkshire related client letters available since last years release. [Answer : No.]

Earlier years, Mr. Bloomstran released the client letters in the first half of February - at least before the 13-F/HR 20XXQ4 was released from Berkshire. Personally, I speculate it won't be so this year, because of the changes - partly actual and partly expected - in the 2018H2 Berkshire portfolio, because just about everybody expects Berkshire has been on a shopping spree in 2018Q4. [ : - ) ]
« Last Edit: January 20, 2019, 12:06:02 PM by John Hjorth »
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shalab

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Re: berkshire - cheap?
« Reply #328 on: January 21, 2019, 08:44:52 AM »
Wally Weitz on Berkshire, if you add share buy-backs, it will add anywhere from 1-5% returns on top of the 7-10%.

Our largest stock holding is Berkshire Hathaway (BRK.A, BRK.B), and we are pretty sure Warren Buffett manages it just as he would if it were private. It holds a portfolio of marketable securities (which we are happy to own), dozens of operating businesses, and (at 9/30/18) cash equal to over $40 per B share. Berkshire companies and securities generate billions of dollars a year in excess cash, and the insurance companies provide a growing pool (currently over $100 billion) of virtually free float (premium money collected but not yet used to pay claims). This cash is reinvested in the business or used to make acquisitions.

We believe that Berkshire is currently selling below its intrinsic value per share and that its value will grow by 7-10% per year on average for many years to come. Drilling into the underlying businesses and investments, we like what we own. Its fortress balance sheet, its diversified portfolio of businesses, and above all, its culture of disciplined capital allocation should make it a solid core holding well beyond Warren's tenure. The stock price will fluctuate with the market and with Berkshire-related headlines, but we would expect its price to reflect its intrinsic-value growth over time.

May the sentiment “cheap but not that cheap “ prevail until they buy back $100 B + worth.

There’s an interesting topic on why value investing doesn’t seem to work anymore. BRK itself being a value play is a more interesting topic. Or most boring 😉
It will be very interesting to see what they have done with the $100 billion in cash in Q4.

I think the most likely meaningful stock purchases are JPM and AAPL (however, the downside with Apple is it is already such a large part of BRK that it now influences the price of BRK; i am sure Buffett does not want the price of BRK to be too closely tied to fortunes of AAPL).

An update of buybacks will also be good.

If it has simply grown by another $7-8 billion (with no meaningful purchases) that will be disappointing. Although i think it is fair to say winter is coming and stocks and businesses will likely be going on sale at some point in the next 12-24 months (perhaps fire sale).

Today is actually the first day this year, that I visited Semper Augustus Investments Group LLC, to see if there were new Berkshire related client letters available since last years release. [Answer : No.]

Earlier years, Mr. Bloomstran released the client letters in the first half of February - at least before the 13-F/HR 20XXQ4 was released from Berkshire. Personally, I speculate it won't be so this year, because of the changes - partly actual and partly expected - in the 2018H2 Berkshire portfolio, because just about everybody expects Berkshire has been on a shopping spree in 2018Q4. [ : - ) ]

investmd

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Re: berkshire - cheap?
« Reply #329 on: February 03, 2019, 05:58:57 AM »
Viking,
Given all the positive sentiment you have outlined so well, I'm surprised to see the last line where you would sell BRK after a moment up of only 5-7% and then time the next dip to buy on.
Since the post on Jan 17th, BRK is up 5%, so are you a seller at today's price - $209 ?


Why do you all think that BRK has not enjoyed a bit of a pop in 2019 like the S&P and other indexes have?

Is it that there has not been enough news flow specific to BRK, or do you think everyone is still worried about the investment holdings of AAPL going down in the portfolio?

Here are my guesses for BRK underperformance YTD:
1.) AAPL and financials big price decline in Q4 and upcoming substantial hit to Berkshire BV when year end results are reported in Feb. Headline will be ugly.
2.) AAPL profit warning (caused immediate decline in BRK) and concern about AAPL results going forward and potential impact on Berkshire BV.
3.) flight to safety reversing: as thepupil mentioned, BRK dramatically outperformed in the Dec panic, and now it is underperforming as investors shift to riskier stocks.

The good news:
1.) since the start of the year, financials are on fire and we all know they are twice the size of AAPL in the BRK portfolio.
2.) AAPL, re-priced in the portfolio at $155, is now cheapish. It could go a little lower but the big decline is behind us. At some point in the next year or two Apple will launch a must have phone and when they do sales and profit will hit new records and the company will be valued over a billion $. At $155 this is a great long term hold for BRK. Having said that, i do think 2019 could be a very difficult year for Apple. China may be a big problem, and may persist for a year or two. And the current lineup of iPhone’s looks uninspiring with the result that people will hold on to their current phone a little longer on average (which will impact unit sales and profits. Fortunately, Apple does have a pretty good track record of recognizing mistakes with the iPhone lineup and making the proper course corrections the following year.
3.) at the end of Q3 BRK had $100 billion in cash. BRK bought $25 billion in stocks in Q3. With the decline in stocks in Q4 i would expect more than $25 billion in new stock purchases in Q4. Perhaps big additions to APPL, JPM etc. If so, this will meaningfully increase earnings power of company.
4.) BRK buying back its own stock: I expect more commentary from Buffett about this in this years annual letter. Given the size of APPL and financials, and the investment portfolio in general, we could see large swings in BV from quarter to quarter. Buffett has his own idea of intrinsic value of BRK and it obviously doesnot swing so dramatically quarter to quarter. Perhaps we will see BRK buy back its own stock at 1.4x BV when it feels the stock portfolio is being undervalued by Mr Market (resulting in BV being understated).
5.) as the US banks have communicated, the US consumer and economy continues to perform well. We can expect the Berkshire op co’s to report very strong results.
6.) tax reform: BRK was one of the big winners and the benefits of tax reform will continue into future years. The stock price today is trading close to where it was trading in Nov of 2017 when tax reform was being discussed. Bottom line is it does not look to me like Mr Market Is valuing Berkshire higher even though its future after tax earnings will be much higher as a result of tax reform.
7.) long term bond yields look like they have peaked and may be headed lower. All things being equal this will allow for a higher PE to be attached to stocks (in general).
8.) as volatility returns to the market, Mr Market may start to value ‘stalwart’ (bond like) stocks like BRK a little higher.
9.) insider buying: $20 million purchase by Jain in Dec likely around $192 is encouraging.

BRK looks attractively priced at current levels. I buy it in place of holding a bond. When it runs up 5-7% i am happy to sell. Rinse and repeat.