The firm calls its positioned for double-digit earnings growth that is unparalleled in its ability to solve customer problems with its deep industry expertise, broad set of offerings, and global presence.  The $230 target is based solely on a 13.5x multiple on its 2013 earnings estimate of$17.00 in earnings per share (versus $16.42 EPS consensus from Thomson Reuters).

It noted, “We believe the company deserves to trade at a modest premium given its relative predictability and stability, and EPS growth profile of 10%-15%. We believe IBM’s goal of $20.00 in EPS in 2015 is achievable. In our view, the beauty of the IBM story is that double-digit EPS growth is not dependent on the top line, but rather a growing mix of higher-margin software (23% of revenue) through organic means and acquisitions.”

Additional notes are as follows:

• IBM is Arguably the Model Enterprise Company.
• Strategic Advisor of Choice.
• Broad International Exposure.

After closing down 0.4% at $192.82, the 52-week range is $151.71 to $194.90.  IBM’s market value is $223.6 billion and the consensus price target is only $199.33.  Stern Agee’s price target is 15% higher than the rest of Wall Street and it also appears to be the new “street-high” price target if Thomson Reuters is accurate.

This call matters to the DJIA because IBM is the largest component by far as the DJIA index is price-weighted rather than market cap-weighted.  If Stern Agee is correct, IBM’s implied upside is about 19.3%.

JON C. OGG

The surprise winner so far in 2012 after the first month is USG Corporation (NYSE: USG). then there are stocks like Bank of America Corporation (NYSE: BAC), Ingersoll-Rand plc (NYSE: IR), Moody’s Corporation (NYSE: MCO), Intel Corporation (NASDAQ: INTC), Wells Fargo & Co. (NYSE: WFC), and American Express Co. (NYSE: AXP).  Yep, the other winners of these seven holdings are mostly tied to finance.

We have evaluated the performance to date (from FinViz.com) and added in some color on each.  We have also shown how the price compares to the 52-week highs or to the consensus price target as well, and included in some cases whether the position is substantial or not.

USG Corporation (NYSE: USG) is up 32.8% year-to-date and is actually Berkshire Hathaway’s top performing stock.  With so much interest in the bottoming out of housing at some point in 2012, it may not be that ridiculous even if the fundamentals have not changed all that much yet.  The concern here is that at $13.50 it now trades above the consensus $13.30 price target.  Buffett holds over 17 million USG shares.

Bank of America Corporation (NYSE: BAC) is up 32.4% year-to-date and the new large preferred position is back to where Warren Buffett doesn’t look foolish for dreaming up his investment in BofA while in the bath.  At $7.36 there is still plenty of upside to the $8.90 price target and this remains (and is expected to remain) well under book value.

Ingersoll-Rand plc (NYSE: IR) is up 15.5% year-to-date, not bad for what is usually a slower-moving company with a portfolio of industrial and commercial products.  At $35.18, it does not have much upside left to the consensus price target of $37.94 but it is still way off the 52-week high of $52.33.  Buffett’s position is way down from prior periods and is only 636,600 shares as of the last report.  This position just can’t move the entire Berkshire Hathaway Barometer too much.

Moody’s Corporation (NYSE: MCO) is up 11.6% year-to-date.  The credit rating agency has been a controversial position that Buffett has lightened up on through time.  At $37.60, it is close to the consensus price target of $39.60 and under the 52-week high of $41.93.  Buffett did lighten up a bit on this position but still holds roughly 28.4 million shares.

Intel Corporation (NASDAQ: INTC) is up 9.5% year-to-date and is one of the news 2011 investments that Mr. Buffett hid.  It was also his first technology pick as far as pure hardware is concerned.  At $26.55, Intel is very close to its 52-week high of $27.00 and close to its consensus analyst price target of $27.17.

Wells Fargo & Co. (NYSE: WFC) is up 8.9% year-to-date and is up the least of the big money-center banks.  It is also the only one of the money-center banks trading above book value because the restructuring regulatory climate over future earnings will create the least amount of change at Wells Fargo. Buffett keeps adding here and now holds over 361 million shares as one of his biggest positions ever.

American Express Co. (NYSE: AXP) is up 7.7% year-to-date, which is lower than many financials. The recent earnings report showed improvement but perhaps a trend towards peaking of the improving credit metrics of AmEx customers.  Buffett’s position is roughly 151.6 million shares.

Berkshire Hathaway’s most recent holdings in entirety can be found here.

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The report cited a recent gain of 36% in earnings, with higher operating income across all the business segments except in the finance and financial products operations. The sectors which were noted as performing well were Insurance, Railroad, Utilities and Energy, Manufacturing, Service and Retail.

The growth engine was labeled as the property and casualty insurance businesses with a contribution of approximately 40% of its 2010 operating income.  Another favorable note for the segment was that it maintains capital strength at exceptionally high levels.

So, what is worth?  Apparently it is worth $91.00 per share and Zacks has an “Outperform” rating on Mr. Buffett’s company.  What is interesting is that this $91.00 figure is a 6-month target rather than a one-year price target.  What does this translate to for valuation? The projection is roughly 13.2-times Zacks’ earnings estimate for 2011 and it implies a total return of about 17% in that period.

We would note that there may be one issue with this report, and that is that Warren Buffett himself has always said to watch the firm’s stated book value per share.  The reason behind that is that he admitted that Team Buffett & Munger could effectively make earnings almost anything they wanted to in any single quarter because of its ability to lock-in gains or losses from its vast investment portfolio or by incurring or pushing out charges on assets. Merger expenses could also alter those quarterly figures.

Mr. Buffett made some significant changes to his investment holdings this last quarter, and here were his full equity holdings.

Shares closed Thursday at $77.81 and the 52-week range is $65.35 to $87.65, so if Zacks is right then Berkshire Hathaway is heading for a new year high.

JON C. OGG

M&T Bank Corporation (NYSE: MTB) is 5.38+ million shares, UP ONLY A TAD from the 5.363 million last quarter but this one had been cut in prior quarters.
Mastercard Inc. (NYSE: MA) was 405,000 shares valued at $128.45 million.  The position is the SAME AS last quarter but still almost double from the quarter before.
Moody’s Corp. (NYSE: MCO) was 28.4 million; SAME AS last quarter but way down from prior quarters and years.
Procter & Gamble (NYSE: PG) was 76.7 million shares and listed as THE SAME as last quarter but lower than the 96.3 million shares in prior quarters.
Sanofi-Aventis (NYSE: SNY) was 4.06 million shares; SAME AS before.
Torchmark Corp. (NYSE: TMK) was more than 4.2 million, a LARGER POSITION than the 2.82 million shares last quarter.
US Bancorp (NYSE: USB) was roughly 69 million shares; SAME AS before.
USG Corp. (NYSE: USG) was 17.072 million shares; SAME AS before.
United Parcel Service (NYSE: UPS) was 1.429 million shares; SAME AS before.
Verisk Analytics, Inc. (NASDAQ: VRSK) was ALMOST DOUBLE in shares at 4.202 million worth $146.1 million versus the 2,101,125 shares a quarter before when it had been started as a new position.
Visa Inc. (NYSE: V) is a NEW POSITION of 2.291 million shares worth $96.44 million.
Wal-Mart Stores Inc. (NYSE: WMT) was just over 39 million shares; SAME AS before after having been raised in 2010.
Washington Post (NYSE: WPO) was over 1.72 million shares; SAME AS before and Buffett kept his word so far about holding the Washington Post shares despite stepping down from its board.
Wells Fargo & Co. (NYSE: WFC) over 361 million shares a HIGHER POSITION than the 352+ million last quarter.

PAGE ONE…BUFFETT HOLDINGS ‘A to K’

As noted earlier… today’s holding disclosure has missing data as Berkshire Hathaway was given permission and likely still does not include the full holdings: Confidential information has been omitted from the Form 13F and filed separately with the Commission.

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American Express Co. (NYSE: AXP) was over 151.6 million shares, SAME AS last quarter.
Bank of New York Mellon Corp. (NYSE: BK) was 1,793,915 shares, SAME AS last quarter.
CVS Caremark Corporation (NYSE: CVS) is a NEW POSITION of 5,661,000 shares worth $190.1 million.
Comdisco Holdings (NASDAQ: CDCO) was roughly 1.5 million shares, SAME AS BEFORE.
Coca Cola Co. (NYSE: KO) was right at 200 million shares, SAME AS BEFORE.
ConocoPhillips (NYSE: COP) is roughly 29.1 million shares, roughly the SAME AS BEFORE but it is still lower than previous quarters.
Costco Wholesale (NASDAQ: COST) 4,333,363 Shares, SAME AS last quarter after having lowered it before.
DirecTV (NASDAQ: DTV) is a NEW POSITION listed as 4,249,400 shares worth $ 179.6 million.
Dollar General Corporation (NYSE: DG) is a LARGER POSITION at 4.497 million shares worth some $169.8 million versus last quarter’s new position of 1,497,800 shares.  This one of our Top Stocks for the Next Decade.
Exxon Mobil Corp. (NYSE: XOM) was 421,800 shares; SAME AS before but lower than the 1.276 million shares originally.
Gannett Co. (NYSE: GCI) was 1.74 million, SAME AS BEFORE but decreased in prior quarters.
General Dynamics Corporation (NYSE: GD) is a NEW POSITION of 3.064 million shares worth $174.3 million.
General Electric Corp. (NYSE: GE) is 7.777 million shares; SAME AS before.  Please note that this does not include the huge preferred shares from late in 2008 that are likely to be called from Buffett later this year.
GlaxoSmithKline (NYSE: GSK) 1.51 million shares, SAME AS last quarter.
Ingersoll-Rand (NYSE: IR) was 636,600; SAME AS last quarter but still way down from prior reports.
Intel Corporation (NASDAQ: INTC) is a NEW POSITION of 9.333 million shares worth $199.6 million. 
International Business Machines Corporation (NYSE: IBM)  is a NEW POSITION and we found out this morning that Buffett’s stake is nearly 64 million shares worth well over $10 billion with an average cost of about $170 per share.
Johnson & Johnson (NYSE: JNJ) was just over 37.4 million, a LOWER POSITION versus the 42.6 million shares the June quarter and way under the peak of 62 million shares at one point in prior quarters.
Kraft Foods (NYSE: KFT) was a LOWER POSITION at 89.7+ million versus 99,467,624 shares at the June quarter and way down from before selling during the Cadbury purchase.

Despite the revelation made this morning and despite the new positions in IBM and Intel, there is still data not represented in Berkshire Hathaway’s full holdings: Confidential information has been omitted from the Form 13F and filed separately with the Commission.  It looks as though Warren Buffett was again given permission to delay or omit some of the new holdings.

PAGE TWO…BUFFETT HOLDINGS ‘L to Z’

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JON C. OGG

Buffett has always avoided technology companies but the more away from PCs to services and the contracts that follow them has brought Warren Buffett to International Business Machines Corporation (NYSE: IBM).  Buffett had a large position of undisclosed securities in his last full holdings and now we know at least a part of that was.

Buffett and Berkshire Hathaway now own about 64 million shares of IBM that have been added since March.  This represents a 5.6% stake in the company and Buffett said that he spent $10.5 to $10.6 billion in building the stake.  If he is right on his number then his average cost is just north of $165.00 per share but he noted closer to $170.00 on average in his interview this morning on CNBC.

We recently gave a list of shares we think that Buffett could have added to during the recent weakness, but IBM was not among them.  This is a serious change of history for Buffett.  Buffett also defended his purchase of Bank of America Corporation (NYSE: BAC) shares saying he thinks that will be a good payoff in five years,

IBM shares are trading up nearly 1% at $189.00 and the year-high and all-time high is $190.53.

JON C. OGG

Some positions which we expect ro would just assume are in Bank of America Corporation (NYSE: BAC), Dollar General Corporation (NYSE: DG), Exxon Mobil Corporation (NYSE: XOM), ConocoPhillips (NYSE: COP), Mastercard Inc. (NYSE: MA), Verisk Analytics, Inc. (NASDAQ: VRSK), Wal-Mart Stores Inc. (NYSE: WMT), and Wells Fargo & Co. (NYSE: WFC).  Just keep in mind that Berkshire Hathaway is granted “Confidential Treatment” in some positions, so it is possible that many others are present but not known by the public.

The total invested was $23.9 billion in the quarter and that appears to be more than any quarter of the last decade and then some.  Almost $7 billion of that was classified as equities.  Keep in mind that the $5 billion for BofA and the $9 billion or so for Lubrizol were a part of the total figures.

Bank of America Corporation (NYSE: BAC) was not in the prior holdings one quarter ago, but what we do know is that Buffett came to the rescue with a $5 billion preferred share purchase where Buffett also gets all of those warrants.  Technically this will not appear in the mid-November filing that shows Buffett’s September 30, 2011 holdings.  It doesn’t matter.  This is now one of his larger positions.

Dollar General Corporation (NYSE: DG) was listed as a new of 1,497,800 shares a quarter ago and our take is that Buffett (actually Todd Combs) will have bought more shares in a recent secondary offering.  There is a reason this was one of our own Top Stocks To Own for the Next Decade.

Exxon Mobil Corporation (NYSE: XOM) is one we continue wonder why Team Buffett lightened up on.  The team already pledged long ago to wind out if ConocoPhillips (NYSE: COP) and that really never happened.  Berkshire’s latest Exxon position was 421,800 shares, which saw the same as before but lower than the 1.276 million shares originally.  Buffett cannot easily just put a few billion to work in most companies, but he easily could accomplish that in Exxon.

Mastercard Inc. (NYSE: MA) was a recent position and it was almost doubled in the last quarter to some 405,000 shares.  With how well this performed and with its toll-keeper business model we would just assume that Team Buffett still likes it and maybe likes it even more.

Verisk Analytics, Inc. (NASDAQ: VRSK) was another new position and it seemed an odd fit for Team Buffett.  That is likely because it was Todd Combs making the call.  The position was 2,101,125 shares worth “only” about $72.7 million as of June 30.  If they liked it before, maybe they liked it again.

Wal-Mart Stores Inc. (NYSE: WMT) is another retailer that we belive Team Buffett may have warmed to for dividends and for valuation.  This position was raised in 2010 but has held steady at just over 39 million shares.  If you see that Wal-Mart is barely 1% off of its 52-week high, it sure seems as though some investors might be betting that the old man in Omaha decided that good things were happening in Bentonville, Arkansas.

Wells Fargo & Co. (NYSE: WFC) has long been Warren Buffett’s favorite bank and he has gradually been adding shares more and more through time.  This position was just over 368.6 million shares and it has grown each quarter of late.  If Team Buffett was adding big positions, it seems that they might have kept their finger on the “buy button” here even when you consider the BofA $5 billion preferred share and warrant investment.

Berkshire Hathaway’s most current portfolio of equity holdings is available here.

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JON C. OGG

Chevron Corp. (NYSE: CVX) has a median target price of $120.00 from 19 brokers. Shares are trading today at $100.74, for an implied gain of $19.26, or 19%.Chevron’s forward P/E is 7.69 and the company pays a dividend yield of 3.1%. The stock’s 52-week trading range is $80.41-$109.94, and at today’s price that’s about 25% above its 52-week low and 8% below the 52-week high. Chevron put out a preliminary estimate on third quarter earnings last week and noted that production would be lower than the second quarter but that profits should be flat at about $3.55/share. The company sees fourth quarter profits going higher. The stock is poised to push past its 52-week high, but the target price does not to be in danger yet.

ConocoPhillips Corp. (NYSE: COP) has a median target price of $80.00 from 17 brokers. Shares are trading today at $69.11, for an implied gain of $10.89, or 16%. Conoco’s forward P/E is 8.33 and the company pays a dividend yield of 3.8%. The stock’s 52-week trading range is $58.37-$81.80, and at today’s price that’s about 18% above its 52-week low and 16% below the 52-week high. Conoco continues to struggle with a leaking well in China’s Bohai Bay that could end up costing the company millions in fines. The company is also spinning off its refining operations, which will not help either its revenue or profits if the refining spreads remain high. Warren Buffett still maintains a hefty position in Conoco shares.

BP plc (NYSE: BP) has a median target price of $54.69 from 12 brokers. Shares are trading today at $40.85, for an implied gain of $13.84, or 34%. BP’s forward P/E is 6.08 and the company pays a dividend yield of 4.2%. The stock’s 52-week trading range is $33.62-$49.50, and at today’s price that’s about 22% above its 52-week low and 17% below the 52-week high. Following last year’s disaster in the Gulf of Mexico, BP’s shares fell below $30 before rising to their current 52-week high. Earlier this week the company agreed to accept $4 billion from Anadarko Petroleum Corp. (NYSE: APC) as that company’s share of the clean-up bill. Payouts have been smaller and have happened more quickly than expected. BP’s biggest problem is that the company sold off so many assets to raise cash, which it might turn out the company won’t need after all.

Occidental Petroleum Corp. (NYSE: OXY) has a median target price of $115.00 from 19 brokers. Shares are trading today at $84.18, for an implied gain of $30.82, or 37%. Oxy’s forward P/E is 10.18 and the company pays a dividend yield of 2.2%. The stock’s 52-week trading range is $66.36-$117.89, and at today’s price that’s about 27% above its 52-week low and 29% below the 52-week high. Oxy’s lack of refining assets doesn’t make it an exact fit with the other companies in this list, but the company’s market cap of around $68 billion pulls is a better fit here. The company has sold off its Argentine assets and is investing in oil and gas exploration in the US, primarily in the Bakken field of North Dakota. The company also does a lot of secondary and tertiary recovery in the Permian Basin, and it recently purchased a controlling interest in a large natural gas play in California.

Petroleo Brasileiro SA (NYSE:PBR) has a median target price of $36.97 from 20 brokers. Shares are trading today at $23.97, for an implied gain of $13.00, or 54%. Petrobras’s forward P/E is 5.92 and the company pays a dividend yield of 0.7%. The stock’s 52-week trading range is $20.76-$42.75, and at today’s price that’s about 15% above its 52-week low and 44% below the 52-week high. Petrobras shares have been hit by the almost unbelievable amounts of money the company will have to spend to develop the massive Brazilian offshore fields. The company has committed to spending $225 billion by 2015, and about a quarter of it this year. That’s a ton of money, but the really bad news is that it could cost even more if the exploration wells don’t live up to expectations.

Paul Ausick

It now seems as though the ongoing plan of acquiring operations has competition with Berkshire’s own stock in a manner of speaking.

What is interesting is the terms that were set, but on a vague basis.  The report noted that no higher than a 10% premium over the then-current book value of the shares will be paid.  The company will use cash on hand but it will not engage in share repurchases which would take the consolidated cash equivalents under $20 billion. 

What is more interesting is that the buybacks are called “continuing indefinitely” and that “the amount of purchases will depend entirely upon the levels of cash available, the attractiveness of investment and business opportunities… and the intrinsic value.”

The company noted, “In the opinion of our Board and management, the underlying businesses of Berkshire are worth considerably more than this amount, though any such estimate is necessarily imprecise. If we are correct in our opinion, repurchases will enhance the per-share intrinsic value of Berkshire shares, benefiting shareholders who retain their interest.”

As you see with many buyback plans, Berkshire Hathaway said it may buy shares in the open market purchases or in privately negotiated transactions.  There is also the caveat thrown in that this announcement does not obligate the company into spending any cash at all for the buybacks. 

If you have followed Warren Buffett and his annual reports for long, he has hinted at buybacks and he has even hinted at dividends.  As most know, the company pays no dividend.

If you consider Buffett’s actions and Berkshire Hathaway’s actions in the past, this buyback news may be more symbolic than it is finite.  The company is still likely to keep reviewing acquisitions while it considers buybacks.

The company has always said it wanted to maintain $20 billion in liquidity, so that figure has not changed.  Buffett always said that book value was a better measurement of the company than earnings.  Now the company is putting its money where its mouth is.  At least somewhat.

At the end of last quarter, Berkshire Hathaway listed some $47.891 billion in cash before its most recent acquisitions and investments.  That takes the number down closer to $35 to $40 billion.  There is also a large bond portfolio, much of which is not likely long-dated.  This leaves plenty of capital room for Berkshire Hathaway to still make outside acquisitions while gradually repurchasing shares.

The news is having the impact that Mr. Buffett probably hoped for… The A-shares are up over 5% and back over the $105,000.00 level and the B-shares are up closer to 6% at $70.33.

JON C. OGG

Dollar stores are yet again in the news on reports from the New York Post that 99 Cents Only Stores (NYSE: NDN) is soon to get a $22.00 to $24.00 buyout offer from the private equity outfit Apollo Global Management, LLC (NYSE: APO) to top a prior buyout offer from Leonard Green & Partners at about $19.09 earlier in the year.  This may be the rumor mill at work, but there are reasons that this is the case.  The trick here is that the founding family controls about one-third of 99 Cents Only and our understanding is that a new deal might be complicated but would still probably boil down to the highest price within reason.

Dollar General Corporation (NYSE: DG) is a Stock to Own for the Next Decade!  It just saw a secondary offering where Kohlberg Kravis Roberts & Co. (NYSE: KKR) and private equity affiliates sold stock.  This has risen significantly since its re-IPO and each pullback has only proven to be a bargain-bin buying opportunity.  To prove a point, the stock hit a 52-week and all-time high of $38.33 on Friday and Warren Buffett’s new portfolio manager bought shares for Berkshire Hathaway Inc. (NYSE: BRK-A).

There has also been buyout interest in Family Dollar Stores Inc. (NYSE: FDO) and Dollar Tree, Inc. (NASDAQ: DLTR).  Family Dollar shares are up 4.5% at $54.38 and Dollar Tree is up only 0.3% at $75.46.

Big Lots Inc. (NYSE: BIG) is no dollar store, but it is very close and it has much of the same customer base.  It has also been under some perceived buyout interest as well.  Its shares are up almost 3% at $34.22 today against a 52-week range of $27.82 to $44.44.

Another close-out store is Tuesday Morning Corp. (NASDAQ: TUES) and it is often overlooked because it has a mere $172 million market capitalization rate.  At $4.03, its 52-week range is $3.38 to $5.93.

99 Cents only is trading up almost 10% at $20.50 today and it hit a new year high of $20.90 earlier.  Before 2005, this one was worth $30 and $35 at the peak and it pays no dividend.

Again, you do not have to like what the growth of discounters and the growth of dollar stores says about America.  Frankly, it is not very pleasant and it fits in with the theme of lower median income and higher poverty.  If Warren Buffett and private equity giants have so much interest in this sector, ask yourself if there is money to be made.

The TJX Companies, Inc. (NYSE TJX) may be too large now for private equity buyers to focus on with its $21.5 billion market valuation.  At $56.65, its stock is pennies away from the year high of $56.78 and that Barron’s $60+ target is looking much closer now.

Family Dollar is the only real dividend in the dollar sector with a 1.4% dividend yield.  TJX Companies is roughly the same dividend yield.  Wal-Mart offers the highest yield of most retailers, but again: Dollar Stores Are The Next Wal-Mart!

Here is the funny thing… Dollar stores are no longer cheap against the stock market.  They are expensive for the simplest of explanations: this is a secular trend and the growth rate looks to be continuous for this segment.

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