Seeking Alpha

At current valuations, Berkshire a better bet than Icahn Enterprises

  • Icahn Enterprises (IEP) is currently trading at a 40% premium to what it calls "indicative net asset value," writes Andrew Bary in Barron's, which seems excessive given performance hinges so much on the success of Icahn's investments. Yes, the company has a small group of wholly-owned businesses, but they produce little profit,
  • Berkshire Hathaway (BRK.A, BRK.B) - on the other hand - trades at a more modest 1.3x book and has a group of wholly-owned businesses which threw off about $15B in income last year. With some earnings growth this year, it's reasonable to say the stock's trading at 1.2x end-of-2014 book - the level at which Buffett and Munger have said they're buyers (with $42B in cash on the balance sheet, they have the means to do so).
Comments (20)
  • ChknCusCus
    , contributor
    Comments (19) | Send Message
     
    Buy BRK only when below 1.1 BV and you will do just fine.
    4 Mar 2014, 12:34 PM Reply Like
  • MrMatt
    , contributor
    Comments (1363) | Send Message
     
    If BRK is on sale for 1.1BV one of two things has happened.

     

    1. BRK ran out of cash to buyback stock themselves, this is bad.

     

    2. BRK management has decided that even at 1.1BV it isn't a good buy, this is very bad.
    4 Mar 2014, 02:18 PM Reply Like
  • ChknCusCus
    , contributor
    Comments (19) | Send Message
     
    That's what I'm saying. Buy when Buffet buys back shares!
    4 Mar 2014, 02:28 PM Reply Like
  • bibol11
    , contributor
    Comments (87) | Send Message
     
    Buffet is granted billions of dollars of stock every year. So are you counting those or what shares are you counting.
    4 Mar 2014, 04:08 PM Reply Like
  • Wayne is a god
    , contributor
    Comments (35) | Send Message
     
    good luck
    4 Mar 2014, 04:28 PM Reply Like
  • Kimer62
    , contributor
    Comments (241) | Send Message
     
    Very little chance you will get the opportunity to buy Brk at 1.1 bookvalue since Buffett put the floor in at 1.2?
    4 Mar 2014, 12:38 PM Reply Like
  • chopchop0
    , contributor
    Comments (3736) | Send Message
     
    Correct. It did get to that level in Sept 2011 (bought it in a roth at $64 for the B shares). Shortly after, Buffett announced the buyback program when the shares got to 1.2x BV or less. Hasn't been that cheap since
    4 Mar 2014, 12:48 PM Reply Like
  • leopardtrader
    , contributor
    Comments (1447) | Send Message
     
    You dont need to own companies wholly to do well. The game is to make concentrated but consistently winning bets just as Carl Icahn is doing. IEP has big upside imo. The main risk for IEP is that of death of Carl. Otherwise Carl is a better and more modern investor than uncle Buffet
    4 Mar 2014, 12:44 PM Reply Like
  • leopardtrader
    , contributor
    Comments (1447) | Send Message
     
    Those that own businesses are exposed to both unlimited downside and upside risks. Those that bet on existing businesses are only exposed to limited downside risk with unlimited upside risks. Icahn bet on businesses while Buffet own businesses
    4 Mar 2014, 01:07 PM Reply Like
  • DAVE22Q
    , contributor
    Comments (329) | Send Message
     
    buy at 1.2. you miss 6 months appreciation at worst and can sleep well. better yet stagger your buy over a month or two to avoid any spikes and try limit orders to catch any downticks.
    4 Mar 2014, 12:46 PM Reply Like
  • firstinsnow
    , contributor
    Comments (537) | Send Message
     
    Wow! last month you could have bought BRK.B as low as 112-113.
    How often do you think you'll get a chance like that?
    My guess is, since the stock has gone up steadily since, that maybe
    the principals bought shares during that downturn.
    Of course, I have no knowledge of that happening, its just speculation
    on my part.
    snow
    4 Mar 2014, 12:49 PM Reply Like
  • Orthoeconomics
    , contributor
    Comments (63) | Send Message
     
    IEP had earnings of $9.07 per LP unit. In 2013 the PE reached 20 (earnings of $7.24 x 20 or $145 per LP unit). That would equate to a price of over $180 per LP unit at the current earnings. I am long with a $180 target- at which time I will sell half my position, and until then I will enjoy the nice dividend.
    4 Mar 2014, 01:09 PM Reply Like
  • Michael Bryant
    , contributor
    Comments (5714) | Send Message
     
    Is (IEP) an MLP? Does it also have a K-1, like (CVRR)?
    4 Mar 2014, 01:37 PM Reply Like
  • Michael Bryant
    , contributor
    Comments (5714) | Send Message
     
    (IEP) gives a dividend. (BRK.B) does not. I would buy both, (BRK.B) for the growth, and (IEP) for growth and dividend.
    4 Mar 2014, 01:36 PM Reply Like
  • mjtroll1
    , contributor
    Comments (1366) | Send Message
     
    It would be interesting to know what the actual operating eps collectively would be for companies. but we all know that the real payoff comes from capital appreciation..and so for IEP to trade at 40% premium to nav does sound rich..comparing it to Berkshire at 30% premium does not as Carl Icahn is a much better "trader" than Mr. Buffett is who is a great "investor"..
    4 Mar 2014, 01:47 PM Reply Like
  • Doug-
    , contributor
    Comments (472) | Send Message
     
    I have little respect for Andrew Bary of Barron's. He does not understand basic 101 for investments. It is not the NAV that is important but the rate of growth. Since the year 2,000 - Icahn's IEP has outperformed BRK by a very wide margin. If you were lucky enough to have IEP instead of BRK in the past 13 years, you would now have 8 times as much money. Lately Buffett has been picking very mediocre stocks. IBM is a dud and so is KO and many of his other selections. On the otherhand Icahn is a star with his amazing stock picks. Icahn stated that his stock portfolio is already up 4.8% for this year verses 1% for the S&P. Buffett has lost his mojo and Icahn is on a winning streak. I will stick with Icahn for he actually has a much, much better track record this century. My capital gains with Icahn are truly shocking. Thank you Uncle Carl.

     

    Very bullish on IEP.
    5 Mar 2014, 03:35 AM Reply Like
  • Doug-
    , contributor
    Comments (472) | Send Message
     
    PS - BTW the 4th quarter earnings for IEP were spectacular.
    5 Mar 2014, 03:45 AM Reply Like
  • Alphamale1000
    , contributor
    Comments (29) | Send Message
     
    Doug,
    I'm sure you have a good investment with IEP but to say Coke is a Dud stock isn't a smart thing if you actually understood what KO means to BRK-A and B. Coke dividends to the Berkshire Hathaway Corp are gravy. Buffett owns 400 million shares of KO and paid an average price of less than $3.25 a share for a cost of $1.3 billion. Today, that stake in KO is worth over 16 billion, which means Buffett has made more than 1,200% not even considering the dividends. Each year that is worth $488 million in dividends which is practically 1/3 the original investment or 266% yield for the original $3.25 average purchase price. That is some thick gravy. Time will tell with the IBM investment.
    19 May 2014, 12:14 PM Reply Like
  • chopchop0
    , contributor
    Comments (3736) | Send Message
     
    Agreed. However anyone getting into KO in the last few years has had to deal with a real dud
    19 May 2014, 12:50 PM Reply Like
  • Michael Bryant
    , contributor
    Comments (5714) | Send Message
     
    No, (KO) has done fine. http://yhoo.it/1qQIQon;c= It nearly doubled in 5 yrs.

     

    If you think this way, most of the juice/water/soda you buy is either owned by (KO) or (PEP). Now (KO) is buying a 16% stake in (GMCR). So I wouldn't be surprised if (KO) goes into the coffee business too.
    19 May 2014, 11:01 PM Reply Like
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