Tags: Bary | Berkshire | Hathaway | earnings

Barron's Bary: The Case for Berkshire Hathaway

By Dan Weil   |   Wednesday, 06 Aug 2014 01:35 PM

Even as the stock market has been on a rollercoaster ride, Berkshire Hathaway reached a 52-week high, and Andrew Bary of Barron's sees plenty of reasons to like the stock.

Berkshire A shares closed at $193,700 Wednesday in NYSE trading, up $1,201, or 0.62 percent, from Tuesday.

The company reported strong second-quarter earnings last week, Bary notes. Berkshire's operating profits climbed 10 percent per share. The Geico, Burlington Northern, energy, power and manufacturing divisions performed particularly well.

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While Berkshire A shares already have advanced more than 8 percent this year, they're still trading at just 1.35 times the company's June 30 book value of $142,483, he explains.

And Nomura analyst Cliff Gallant lifted his price target to $208,000 from $199,000 Monday, confirming his buy rating. Gallant says in a commentary obtained by Bary that "strong operating earnings like these will be the main driver of book value growth."

Bary doesn't foresee huge gains for the stock, given Berkshire's massive size and a price-book ratio close to the average of recent years. But, "it may continue to appreciate in line with growth in book value, which is running at a 10 percent rate."

Morningstar analyst Greggory Warren likes the company, but has some qualms.

"While Berkshire is likely to continue putting money to work in value-creating projects in the near to medium term, much as it has in the past, we think the huge sums of cash that it generates and maintains on its balance sheet will ultimately limit its ability to produce outsize returns," he writes on Morningstar.com.

Berkshire's cash hoard has now surpassed $50 billion for the first time.

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