Berkshire, GE, Anhueser Busch: Stick With The Best

As I write this old Mr. Market has finally shown his nervous face. After arriving at the market 3 weeks in a row offering lower and lower prices. Appearing each day more pessimistic and gloomy, he finally has gotten downright fearful. He was, Monday morning, offering approximately 5% less for the S&P than he would on Friday. Then yesterday morning, in a fit of fearfulness - that may have been brought on by the realization a democrat could be in office, the fact that Bank of America barely made a dollar, and the realization that certain insurance companies cannot insure anything - he offers 5% less than the last day of trading. This puts his offer to sell his shares about 16% less than at the first of this year. In just 22 days old Mr. Market lowered his offer for United States Stocks by 16%.

The question really is: is American business worth 16% less than it was 22 days ago or is Mr. Market just very fearful. I ask two questions: What is a good value estimate for the S&P? And, are there some very high quality companies worth buying here? Historically, 15x earnings is a fair multiple for the s&p 500 and we are right at that. I would say therefore going forward this year dollar cost averaging into the s&p 500 at these prices would be a prudent idea. Better yet, may be buying some individual outstanding companies that are being offered at value. I will name a few.

Berkshire Hathaway (BRK.A) (BRK.B)

Berkshire is the best managed company in the world. It is headed by Warren Buffet - the greatest investor in the world with his pal Charlie Munger. I will just say these are the people you want to be with when you’re traveling in fearful water. They will know what to do - they have in the past. I trust that Warren will know what businesses to buy and at what prices to buy them from old fearful - Mr. market. I believe he will plant seeds to grow his business in the coming months and years. As we speak he is moving in insurance and railroads. Buffet has said his best investments were made in past recessions. I expect this will be no different. He may make huge individual investments at great terms. To say the least these are his waters. Might as well let him drive the boat.

General Electric (GE)

This great company has gotten premium returns on equity for years and as Jeff Immult says was built to withstand this environment. It is currently trading at about 14x forward earnings. This is a bargain for this company that has historically traded far higher than this. Typically Mr. Market offers 20-25x earnings for this stellar group of businesses. Might as well take advantage of his fearfulness. Did I mention Buffet respects Jeff Immult and owns some GE in Berkshire

Anhueser Busch (BUD)

This is the stalwart to get anybody through the recession. I will personally contribute to the earnings along with many others. The bottom line is people keep having a couple beers even during a credit crisis. And this business for the last 10 years has received an average return on equity of 48%. WOW.

This too will pass.

Disclosure: Author holds positions in the above mentioned securities

Comments

[helplessobserver]

Your recommendations meet the stock adage buy "quality, quality and quality". Buffet's move into bond insurance is a master stroke of investment genius. He will pick off this slow growth but steady earning industry and tuck it neatly into his other businesses. Yes, soar with the vulcher, don't become road kill.