Berkshire Could Hit $200K Within Two Years - Barron's

Despite Doug Kass's negativity, and shares that sell for about $123,000, Barron's thinks Berkshire Hathaway (BRK.A) is cheap at current levels.

Alan Abelson's bullish case is built on a recent report by hedge fund T2 Partners.

First the negatives:

• An absence of positive catalysts to spark a rise in share prices.
• Buffett's age.
• A lack of solid investment opportunities for which to use Berkshire's growing cash hoard.

To which T2 responds:

• Berkshire's intrinsic value will continue to grow even in absence of a major catalyst.
• Buffett seems to be doing just fine, thank you very much, and Berkshire has a strong board and a succession plan. Moreover, they don't see much of a "Buffett premium" in current share prices.
• Investment opportunities will probably arise, but if not, there are worse things than sitting on cash, which Buffett says he'll distribute to shareholders if there's nowhere to park it.

As for Berkshire, the value of its investments per share is up to $90,343 from $52,506 five years ago. EPS, excluding investment income, quadrupled over the same period. And T2's measure of intrinsic value stands at about $158,000 per share -- meaning Berkshire is 20% undervalued. Assuming 10% intrinsic value growth, shares could be worth $178,700 12 months from now, and over $200,000 within two years.

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David Enke think's Barron's may temporarily "stem the tide" of a recent Berkshire selloff -- but notes many of the short-sellers aren't going away. Buffett himself alluded the company would likely underperform in the short-term.

Still, it's a stock that's tough to short, he says:

While short-sellers like Kass will continue to short Berkshire, and give good explanations - such as Buffett's age and lack of a visible succession plan, new hedge-fund competition, new uncharacteristic exposure to derivatives, and waning benefits from the insurance industry - it is difficult to bet against someone with so much cash to deploy, as well as a track record for wisely putting it to work. While the stock has been volatile, and is receiving attention from the short side, it is difficult for many investors to sell at these levels until more of the issues that Kass describes come to light. For the time being, most of the current long investors will no doubt hold, and look for others to join in - maybe in October.

Comments

[Bud Labitan:]

Eli, I agree with you. The intrinsic value of BRK is around 200K now. I think you might like my new self-published book. My book, "The Four Filters Invention of Warren Buffett and Charlie Munger" examines each of the basic steps they perform in framing and making an investment decision.

Warren Buffett mentions the Four Filters this way: "Charlie and I look for companies that have a) a business we understand; b) favorable long-term economics; c) able and trustworthy management; and d) a sensible price tag." These Four Filters can enhance the probability of our investment success. My book is available at frips.com and, it includes a valuation case example of Kraft, KFT.

Here is a 10 min. audio book summary:
www.frips.com/4fsummar...

Bud Labitan
frips.com

2008 May 18 03:46 PM

[Donald Johnson:]

I don't know. It seems to me that BRK has become such a complex conglomerate that it's impossible for one person or one think tank to analyze the company. Individual investors have to depend on third-hand reports like Abeleson's and Barron's and on various technical indicators.

Most important, as indicated above, this seems to be an almost faith-based investment, which can be kinda risky, imho.

The idea that BRK can replace Buffett and Munger puzzles me. Whoever succeeds them will change the business model, the approach to investing and the management style. That's what people do, and what they will do in their own unique environments is so unpredictable that it seems very speculative to say, "everything will be just fine."

A new CEO may breakup the company, expand it or who knows what.

2008 May 18 09:43 PM

[Ker:]

What a stupidity! Of course it will hit 200k, it will get much far than 200k!
At the rate the money is printed, the market will go to unbelievable highs!
So high, that with one share of Berkshire you would buy an average computer.
Check the history of Germany in 1920: The value of the Daimler company was about $980 million and a car cost $3 million - the whole company was only worth 327 of its cars.
www.nowandfutures.com/...

2008 May 19 09:49 AM

[Chris H.:]

Does any of this translate to B-shares?

2008 May 19 11:07 AM

[vaduz:]

johnson is very thoughtful and ker quite funny or maybe not since i also think that inflation will be americas next big problem - unresolved

2008 May 19 11:19 AM

[Ker:]

Its not funny Vad, US is going to be hit very bad. Why do you think they stopped reporting the M3? You have to see more far than that. Buffet is going to lose big, he knows it, but he can't tell anyone this in the news.

2008 May 19 02:46 PM

[long_on_oil:]

If we get the kind of inflation you all are talking about...who better to manage your money than Buffet? Most individual investors and so called financial advisers will be left in the rubble.

2008 May 19 03:19 PM

[silver-bullet:]

What about precious metals? Gold, Silver? Anyone?

Can someone verify this, that the US is headed for a currency crisis as soon as summer 2008? What will the effects be on BRK? What about mining stocks?

What about sky rocketing oil prices, this is a symptomatic of inflation. The effects is going to be bitter given a slowing economic environment in US. How will this affect emerging economies? Will China revalue their currency upward?

I know I am just jabbering, but somehow this thread got me thinking off a tangent.

2008 May 25 03:00 AM

[Ker:]

people will understand what do stock really worth when today's stock markets repeats 1929. fools learn on their own mistakes, smart from the history. Buffet will not avoid losing in his now European stocks, hard assets is the what you have to buy, to have "return OF capital" , forget about "return ON capital" !

2008 May 29 05:38 PM

[bigduke:]

Amazing that so many want to copy the method, when one can buy either A or B shares with the whole package in the original stock.

So much of value is entirely owned by Brk or one of its offspring mentioned above.

duke

Sep 30 01:09 AM