Berkshire looks cheap after Warren Buffett airlines bale out
“Warren Buffett sold airlines a little while ago,” Trump said.
“He’s been right his whole life, but sometimes even somebody like Warren Buffett — I have a lot of respect for him — makes mistakes. They should have kept the airline stocks because the airline stocks went through the roof today,” Reuters reported Trump as saying.
It looks as if the 89-year-old Buffett erred by selling roughly a 10 per cent stake in each of the top four US airlines near the bottom in April.
But the rest of the Berkshire Hathaway equity portfolio, which totalled $US180bn ($292bn) on March 31, has staged a nice recovery this quarter, led recently by financial stocks such as Bank of America, Wells Fargo and American Express.
Berkshire’s largest holding, Apple, hit a record high of $US331.75 on Friday and finished at $US331.50, up nearly 3 per cent. Berkshire’s Apple stake is now worth about $US81bn.
And with many US-focused industrial businesses like the Burlington Northern Santa Fe railroad, Berkshire offers an economic recovery play. The company also is benefiting from better pricing in property and casualty reinsurance, where it is a major player.
Berkshire shares, which were badly lagging behind the S&P 500 in May, have recouped some lost ground lately. The Class A shares finished with a 4.5 per cent gain on Friday to $US309,200. The Class B stock gained 4.5 per cent to $US200.66.
Berkshire stock remains historically cheap, trading for about 1.2 times the Barron’s estimate of the company’s book value. The stock has traded in recent years for 1.4-1.5 times book value.
Book value stood at about $US229,000 per class A share on March 31 and may rise to $US250,000 on June 30 based on the rally in the stockmarket and the company’s earnings.
Berkshire board member Meryl Witmer may have bottom-ticked the stock with a purchase of more than $US2m of Berkshire shares in mid-May at around $US261,000 a Class A share. At that time, Berkshire traded near 1.1 times book value.
Witmer is a noted value investor and general partner of Eagle Capital Partners. She is also a long-time member of the Barron’s Roundtable.
Berkshire is down about 11 per cent this year, trailing the S&P 500, which is about flat, based on its total return.
Investor Bill Ackman, of Pershing Square Investment Management, said recently he had sold his Berkshire stake, noting that Buffett was sitting on $US137bn of cash at the end of the first quarter and faced a challenge in investing those funds.
The sale by Ackman, who has been on a roll this year, didn’t help sentiment on Berkshire.
Some Berkshire holders are disappointed that a conservative Buffett wasn’t an active buyer of stocks during the March quarter and dumped the four airline issues for a total of about $US6bn.
They were Delta Air Lines, Southwest Airlines, United Airlines and American Airlines. Berkshire was also a light buyer of its stock, repurchasing $US1.7bn in the period.
Berkshire investors are eager to see whether the company was more aggressive with stock buybacks in the current period given the low valuation on the shares.
Barron’s
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It has reached the point that Warren Buffett’s investment miscues are drawing the attention of Donald Trump, who teased Buffett on Friday at the White House for dumping airline stocks before their recent surge.