Berkshire Hathaway Authorizes Stock Repurchases

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Sep 262011
 

The Board of Directors today “authorized Berkshire Hathaway to repurchase Class A and Class B shares of Berkshire at prices no higher than a 10% premium over the then-current book value of the shares.”  “In the opinion of our Board and management, the underlying businesses of Berkshire are worth considerably more than this amount”. 

As of June 30, 2011, Berkshire’s latest filing, its Class A shares had a book value of $98,716, while its Class B shares had a book value of $65.81.  This repurchase program was announced by Berkshire prior to the market’s open today.  At the close of trading today, the Class A shares were at $108,449 (+ 8.10% for today) and the Class B shares were at $72.09 (+ 8.62%).  At these closing prices, the Class A  and Class B shares are approximately 10% above their book value as of June 30.  Assuming  the book value of these shares are unchanged since June 30 (lower prices for Berkshire’s equity portfolio offset by nearly three months of profits from its businesses), they are now priced at the upper end of where Berkshire currently would be willing to purchase its shares. 

It is not known whether, or how many shares, may have been purchased by Berkshire today.  This repurchase program effectively sets a floor under Berkshire’s stock price at today’s closing price.   Since Berkshire states that its shares are considerably undervalued at their current level, there appears to be substantial upside potential to these shares.

 Posted by at 6:57 pm

Warren Buffett Hires Portfolio Manager

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Sep 132011
 

Warren Buffett has hired a second portfolio manager, Ted Weschler, who is a hedge fund manager with an outstanding track record over the past decade.  He will join Todd Combs at Berkshire Hathaway to manage part of its $60 billion portfolio.

I am quoted in a Los Angeles Times article on Ted Weschler:

Combs and Weschler appear to have different strengths, with Combs having focused more on financial stocks while Weschler appears to have favored communications-related picks. Bringing them together may work well, according to some experts.

“It seems they might complement one another,” said David Kass, a professor of finance at the University of Maryland who has studied Buffett and his work. “Weschler will bring diversification and expertise outside of the financial sector to Berkshire Hathaway.”

The entire article is available at:

http://www.latimes.com/business/la-fi-buffett-20110912,0,3007540.story

 Posted by at 8:26 am

Todd Combs Is Outperforming the S&P 500 at Berkshire Hathaway

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Sep 052011
 

Since being hired as a portfolio manager by Warren Buffett at Berkshire Hathaway (BRK.A, BRK.B) in January, 2011, Todd Combs has made investments in two stocks that have each outperformed the S&P 500.  This article is based on Form 13F filings with the Securities and Exchange Commission by Berkshire Hathaway.

In each of the first and second quarters of this year, Todd Combs purchased approximately 200,000 shares of MasterCard (MA) with a total current market value of about $130 million.  (The 13F filing does not provide information on the cost of each security that is reported.  It is assumed that these securities were purchased at its average weekly closing price during the quarter that it was acquired.)  MA’s closing price on September 2, 2011 of $320.68 is 31% above its average weekly closing price of $244.02 in the first quarter, and 16% above its average weekly closing price of $276.46 in the second quarter.  At its closing price of 1173.97 on September 2, the S&P 500 is down 7% year to date, and down 12% since the end of the first quarter.

Mr. Combs’ second investment was made during the second quarter.  This consisted of 1.5 million shares of Dollar General (DG) with a current market value of about $54 million.  At its closing price on September 2, 2011 of $36.06, DG is 10% above its average weekly closing price of $32.88 during the second quarter.

Both MA and DG exceeded analyst estimates for earnings per share in the second quarter and each has a bright outlook for growth over the near future.  This is especially noteworthy in an economic environment of slow growth and a substantial risk of a recession.

A good defensive strategy for investors at this time would be to consider the shares of both MA and DG, as well BRK.A or BRK.B.  Berkshire Hathaway appears to be undervalued by selling at a near historic low ratio of price to book value of less than 1.1.  Both DG and MA are currently selling at reasonable valuations based on their price to earnings ratios (P/E).  The P/E for DG = 19, and for MA it is equal to 20, on a trailing twelve months basis.

Until now, a very successful investment strategy has been to emulate Mr. Buffett’s investments.  Perhaps, this approach should also be extended to following Mr. Combs.  Although Todd Combs’ track record discussed here encompasses less than a 9 month period and only two investments, it would indicate that his future transactions may be well worth giving careful consideration.  If Mr. Combs should continue to outperform the S&P 500, it might provide an additional reason to invest in Berkshire Hathaway.

This article has also been published by Seeking Alpha:

http://seekingalpha.com/article/291641-a-look-at-how-berkshire-hathaway-s-todd-combs-is-outperforming-the-s-p-500

 Posted by at 11:04 am