Warren Buffett is famous for finding precious value stocks. Now his own Berkshire Hathaway may represent a solid value investment.
“Berkshire itself looks appealing, at just 1.2 times our estimate of its current book value of $72,000 a share,” Andrew Bary wrote in Barron’s.
“In the past decade, the stock has traded for an average of 1.6 to 1.7 times book value, a measure of shareholder equity per share. The current price-to-book ratio is near the low reached in early 2000, when Berkshire's stock bottomed at about $40,000.”
Despite Berkshire’s steep losses last year, Buffett took some positive steps, making “more than $20 billion of promising investments,” as Bary puts it.
That includes purchases of preferred stock and warrants from Goldman Sachs and General Electric.
But Wall Street isn’t convinced. Berkshire Class A shares (ticker: BRK-A) have stagnated near $85,000.
They have dropped 12 percent so far this year and have plunged 43 percent from their 2007 peak of $149,000. And the stock hasn’t benefited much from the market’s rally the past four months.
But Barron’s said the stock could be headed up to $110,000 in the next year. “That price target doesn't seem outlandish in view of the projected price-to-book-value ratio.”
Meanwhile, Berkshire itself is taming its risk profile. The company is withdrawing from catastrophic property reinsurance, for example.
That’s because “we don't have as much excess capital as we had a couple years ago,” Buffett told shareholders in May.
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