Tags: Buffett | stocks | frothy | overvalued

Buffett: Stock Prices Aren't 'Too Frothy'

By    |   Thursday, 24 April 2014 08:05 AM

Investment legend Warren Buffett, CEO of Berkshire Hathaway, isn't worried that stock prices are overvalued.

Both the S&P 500 and Dow Jones Industrial Average are about 1 percent away from their record highs. CNBC's Becky Quick asked Buffett whether stocks are "too frothy."

"No, I think we're in a range, and it's a big zone always of reasonableness," he responded. "Stocks ought to be higher every 10 years."

Editor’s Note: Retire 10 Years Earlier With These 4 Stocks

Earnings get plowed back into companies for growth year after year, Buffett said. "Stocks will become worth more decade after decade, not in any precise manner, not in an even manner or anything of the sort," he said.

"But 10 years, 20 years, 30 years from now, stocks will be worth more than they are today."

Hedge fund heavyweight David Einhorn, president of Greenlight Capital, said in a letter to clients Tuesday, "we are witnessing our second tech bubble in 15 years."

Buffett reiterated that he doesn't always comprehend valuations of tech companies. But this isn't similar to the period before 2001, when "you could almost sell anything and capitalize eyeballs and all of that," he said.

"I don't think it's reached that point, and certainly I don't think the general market level is going to bubble up."

Buffett said he disapproved of Coca Cola's equity compensation plan that was approved Wednesday, because it's excessive. But he said he has no plans of selling any of Berkshire's stake in the company.

As of Dec. 31, Berkshire owned 400 million Coke shares, just over 9 percent of shares outstanding. Coke stock has slipped 0.6 percent so far this year, closing Wednesday at $40.75.

Buffett said he hasn't soured on IBM, despite the company's recent spell of weak earnings. "I've actually bought a few shares this year," he said. "I've never sold a share." Buffett said he would buy more shares of the stock at the right price.

IBM shares have risen 2.8 percent so far this year, finishing Wednesday at $191.73.

Meanwhile, activist investors are gaining strength, Buffett said. "The CEOs are terrified of activists. I can tell you that. They are all talking to investment bankers and lawyers and saying what do we do about this?" he said.

Buffett said you can't generalize about which side is right. "I think there are companies where management has not done a good job," he said. "Certainly if people want to step up and buy a lot of stock in the company, it's hard to argue with their right to do that."

As for the stock market, when it comes to the short term, some investors remain bullish. "Generally valuations are still supportive for stocks, and reasonable earnings results will support continued gains," David Carter, chief investment officer at Lenox Wealth Advisors, told Reuters.

The S&P 500 traded at 17.9 times 12-month trailing earnings as of Friday, according to Birinyi Associates.

Editor’s Note: Retire 10 Years Earlier With These 4 Stocks

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Investment legend Warren Buffett, CEO of Berkshire Hathaway, isn't worried that stock prices are overvalued.
Buffett, stocks, frothy, overvalued
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2014-05-24
Thursday, 24 April 2014 08:05 AM
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