The Berkshire Hathaway Portfolio
New Investments and AdditionsAs of Sept. 30--Berkshire's most recent filings with the SEC--the conglomerate didn't add any new positions compared to its June 30 report, but it did receive shares in Western Union (NYSE:WU - News) which was spun off from longtime holding First Data (NYSE:FDC - News). Berkshire also increased its stake in five of its existing holdings: Iron Mountain (NYSE:IRM - News), Lowe's (NYSE:LOW - News), Nike (NYSE:NKE - News), and USG (NYSE:USG - News).
I think the most intriguing of these is Western Union, which dominates the lucrative money transfer market. My colleague Mark Weber has long held Western Union to be the most undervalued part of First Data's overall business, and believes that the spin-off now allows potential investors to participate in the economics of this outstanding franchise at a very attractive price. In fact, Weber estimates Western Union's fair value to be $32 per share, about a 45% upside to the firm's current share price.
It should also be noted that Berkshire boosted its stake in USG, a manufacturer of gypsum wallboards, which emerged from asbestos related bankruptcy last June. Berkshire has owned USG since 2001, and more recently backed a rights offering from the company in mid-2006. Given Buffett's experience with asbestos liabilities via Berkshire's insurance operations, as well as his acquisition of the formerly asbestos burdened John Mansfield, I'm cautiously optimistic about Berkshire's stake in USG as well. I will note, however, that as of this writing Morningstar does not have a rating on USG shares.
Eliminations and ReductionsEven though Berkshire is typically a buy and hold investor--especially when it comes to making wholly owned acquisitions--it does from time to time trim or outright sell some of the positions in its equity portfolio. In the quarter that ended Sept. 30, Berkshire modestly trimmed its position in beer maker Anheuser Busch (NYSE:BUD - News), sold some of its holdings in tax adviser H&R Block (NYSE:HRB - News), continued to divest its stake in financial services distributor Ameriprise Financial (NYSE:AMP - News), and appears to have sold a significant chunk of its shares in mass-market retailer Target (NYSE:TGT - News).
The apparent decision to jettison shares in Target is surprising, given that Berkshire had recently released that it built a position of 5.5 million shares of the retailer through June 30. Berkshire's Sept. 30 filing indicates that the conglomerate now only owns 745,000 shares. An analysis of Target's stock price history indicates that if Berkshire did in fact reduce its position in Target, it would likely have done so at a price at least equal to, if not below, the price at which it had accumulated the position. Given that Berkshire still has sizable positions in relatively similar retailers like Wal-Mart (NYSE:WMT - News) and Home Depot (NYSE:HD - News), it seems odd that Berkshire would do an about face on Target. It should be noted, though, that the SEC allows Berkshire to delay filing its holdings on some stocks while it is still accumulating a position. For example, this is how the conglomerate has disclosed its growing stake in Johnson & Johnson (NYSE:JNJ - News). Thus, it's still possible that Berkshire has maintained a position in Target, with the disclosure being somewhat delayed. Giving further credence to this hypothesis is my colleague Joseph Beaulieu's $65 per share fair value estimate for the retailer, which indicates that at Morningstar we still believe that the shares are moderately undervalued.
Less surprising than Target, however, was the continued liquidation of the Ameriprise shares, which Berkshire had acquired when longtime holding American Express (NYSE:AXP - News) spun off the unit in mid-2005. My colleague Dafina Dunmore believes that it will be difficult for Ameriprise to generate above-average returns on capital due to a difficult regulatory climate and intensifying competition. Given this outlook and the fact that Dunmore believes the shares are fairly valued right now, I suspect that Berkshire will continue to divest itself of Ameriprise over time.
5-Star StocksAs of Jan. 8, only four of Berkshire's stocks boasted 5-star Morningstar Ratings for stocks, which itself is an interesting commentary on overall stock market valuations. That said, our analysts still believe that the shares of United Parcel Service (NYSE:UPS - News), Wal-Mart, the aforementioned Western Union, and White Mountains Insurance (NYSE:WTM - News) are currently offering investors the potential to earn attractive long-term returns.
More interesting still is that even with the recent runup in the share price, Berkshire's stock still has a 5-star rating, with a fair value estimate of $4,550 per class B share. In my view, an investment in Berkshire would have a dual benefit--it gives investors exposure to all of the companies in Berkshire's equity portfolio as well as to the conglomerate's substantial private holdings.
The Complete HoldingsHere's the complete list of Berkshire's equity portfolio, ranked from the largest position to the smallest. I continue to note that despite having 39 names in the portfolio, Berkshire's holdings are very concentrated. The top 10 stocks account for more than 80% of the portfolio: American Express, Anheuser-Busch, Coca-Cola (NYSE:KO - News), Conoco Phillips (NYSE:COP - News), Johnson & Johnson, Moody's (NYSE:MCO - News), Procter & Gamble (NYSE:PG - News), Washington Post (NYSE:WPO - News), Wells Fargo (NYSE:WFC - News), and Wesco (AMEX:WSC - News).
Source: Justin Fuller, CFA
I think the most intriguing of these is Western Union, which dominates the lucrative money transfer market. My colleague Mark Weber has long held Western Union to be the most undervalued part of First Data's overall business, and believes that the spin-off now allows potential investors to participate in the economics of this outstanding franchise at a very attractive price. In fact, Weber estimates Western Union's fair value to be $32 per share, about a 45% upside to the firm's current share price.
It should also be noted that Berkshire boosted its stake in USG, a manufacturer of gypsum wallboards, which emerged from asbestos related bankruptcy last June. Berkshire has owned USG since 2001, and more recently backed a rights offering from the company in mid-2006. Given Buffett's experience with asbestos liabilities via Berkshire's insurance operations, as well as his acquisition of the formerly asbestos burdened John Mansfield, I'm cautiously optimistic about Berkshire's stake in USG as well. I will note, however, that as of this writing Morningstar does not have a rating on USG shares.
Eliminations and ReductionsEven though Berkshire is typically a buy and hold investor--especially when it comes to making wholly owned acquisitions--it does from time to time trim or outright sell some of the positions in its equity portfolio. In the quarter that ended Sept. 30, Berkshire modestly trimmed its position in beer maker Anheuser Busch (NYSE:BUD - News), sold some of its holdings in tax adviser H&R Block (NYSE:HRB - News), continued to divest its stake in financial services distributor Ameriprise Financial (NYSE:AMP - News), and appears to have sold a significant chunk of its shares in mass-market retailer Target (NYSE:TGT - News).
The apparent decision to jettison shares in Target is surprising, given that Berkshire had recently released that it built a position of 5.5 million shares of the retailer through June 30. Berkshire's Sept. 30 filing indicates that the conglomerate now only owns 745,000 shares. An analysis of Target's stock price history indicates that if Berkshire did in fact reduce its position in Target, it would likely have done so at a price at least equal to, if not below, the price at which it had accumulated the position. Given that Berkshire still has sizable positions in relatively similar retailers like Wal-Mart (NYSE:WMT - News) and Home Depot (NYSE:HD - News), it seems odd that Berkshire would do an about face on Target. It should be noted, though, that the SEC allows Berkshire to delay filing its holdings on some stocks while it is still accumulating a position. For example, this is how the conglomerate has disclosed its growing stake in Johnson & Johnson (NYSE:JNJ - News). Thus, it's still possible that Berkshire has maintained a position in Target, with the disclosure being somewhat delayed. Giving further credence to this hypothesis is my colleague Joseph Beaulieu's $65 per share fair value estimate for the retailer, which indicates that at Morningstar we still believe that the shares are moderately undervalued.
Less surprising than Target, however, was the continued liquidation of the Ameriprise shares, which Berkshire had acquired when longtime holding American Express (NYSE:AXP - News) spun off the unit in mid-2005. My colleague Dafina Dunmore believes that it will be difficult for Ameriprise to generate above-average returns on capital due to a difficult regulatory climate and intensifying competition. Given this outlook and the fact that Dunmore believes the shares are fairly valued right now, I suspect that Berkshire will continue to divest itself of Ameriprise over time.
5-Star StocksAs of Jan. 8, only four of Berkshire's stocks boasted 5-star Morningstar Ratings for stocks, which itself is an interesting commentary on overall stock market valuations. That said, our analysts still believe that the shares of United Parcel Service (NYSE:UPS - News), Wal-Mart, the aforementioned Western Union, and White Mountains Insurance (NYSE:WTM - News) are currently offering investors the potential to earn attractive long-term returns.
More interesting still is that even with the recent runup in the share price, Berkshire's stock still has a 5-star rating, with a fair value estimate of $4,550 per class B share. In my view, an investment in Berkshire would have a dual benefit--it gives investors exposure to all of the companies in Berkshire's equity portfolio as well as to the conglomerate's substantial private holdings.
The Complete HoldingsHere's the complete list of Berkshire's equity portfolio, ranked from the largest position to the smallest. I continue to note that despite having 39 names in the portfolio, Berkshire's holdings are very concentrated. The top 10 stocks account for more than 80% of the portfolio: American Express, Anheuser-Busch, Coca-Cola (NYSE:KO - News), Conoco Phillips (NYSE:COP - News), Johnson & Johnson, Moody's (NYSE:MCO - News), Procter & Gamble (NYSE:PG - News), Washington Post (NYSE:WPO - News), Wells Fargo (NYSE:WFC - News), and Wesco (AMEX:WSC - News).
Source: Justin Fuller, CFA
Labels: AMP, AXP, BUD, COP, FDC, HD, HRB, IRM, JNJ, KO, LOW, NKE, PG, TGT, UPS, USG, WMT, WTM, WU
posted by Stock Administrator @ 8:40 AM
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