Berkshire Hathaway shares have dropped 9 percent since the end of April, and some investors say that decline makes the company a bargain just too good to pass up.
Legendary investor Warren Buffett is Berkshire’s CEO, of course.
The company’s A shares recently traded at $113,713, but money manager Whitney Tilson of T2 partners estimates they have intrinsic value at $167,000 a share, according to SmartMoney.com. And his funds have been snapping up shares, which recently hit a one-year low. (Berkshire’s B shares have fallen on harder times as well, settling to a new 52-week low of $73.23 on June 15, after reaching a 52-week high of $87.65 on Feb. 28).
Berkshire reported a book value of $97,081 per A share as of March 31. This means Berkshire stock now trades at about 1.17 times book value. That’s a far cry from its historical median valuation of 1.7 times book value calculated by Barclays.
So why have Berkshire shares dropped? First, natural disasters in Japan, Australia and New Zealand hurt the company’s reinsurance operations.
Second, Berkshire has a heavy weighting toward financial stocks, which are sucking wind this year.
Finally, there are concerns about succession to Buffett, who’s 80.
But Tilson isn’t worried. “I don’t know whose name is in the envelope (to follow Buffett), and I don’t care,” he tells SmartMoney. “Buffett is at the top of his game and will be running this company another five, maybe 10, years.”
Not everyone is enthusiastic about Berkshire shares, though.
“In our view, Berkshire’s tripartite exposure to economic weakness (its own operating units, equity holdings, and derivatives) justifies its recent underperformance,” Stifel Nicolaus analysts write, as reported in The Wall Street Journal. “We don’t see enough upside over the next 12 months to warrant a Buy rating.”
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