Is Berkshire Hathaway Finally A Cheap Stock? (BRK-A)

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This weekend, Barron’s wrote an article noting that shares of Berkshire Hathaway Inc. (NYSE: BRK-A) were finally cheap.  After closing at $90,000 on Friday and seeing a low of $74,100 last week, the publication believes that the stock looks cheap.  Keep in mind that over the last year or so shares have traded as high as $150,000.

Barron’s does note the concerns over the valuations which have doggedthe stock.  Its public stocks were valued at roughly $76 billion as ofSeptember 30 (even less now) and it also had many put options on about$37 billion worth of equity indexes.  Barron’s estimated that thecompany has lost about $5 billion on a mark-to-market basis, butbelieves the stock has been over-punished for it.  It also noted thecompany’s Triple-A rating and $140 billion stock market value.  It alsonoted that it trades at 2.3-times shareholder equity rather than ratiosof 20-times at many other financial companies.

Barron’s noted how it took heat a year ago saying the stock had peakedout, but it now believes it looks like the time to buy.  We agree thatthe sell-off seems overdone, although the caveat of the day is thatsell-offs are going beyond logic and the investor exodus from equitiesand corporate exposure is likely to continue even if we get some steepand sharp bear market rallies.

The publication put Berkshire Hathaway’s bookvalue at around $66,000, down about 14% from the September 30 level.This is hard to get an exact reading on because of the derivatives andbecause of the recent investments which Mr. Buffett has made changeseven since his September 30 filing date.

Shares have rallied more than 15% from the lows of Thursday to Friday’sclose.  Rally or no rally in the stock market, that is very impressiveand worth noting.  We do not think that Berkshire will run up as highas many other more leveraged and high-beta stocks if the market makesany sharp moves to the upside.  But we also do not see the companyhaving as much risk to the downside for the time being.  Its lastearnings were dismal, but hurricane season is now behind the companyuntil next summer.

Whether the real value is slightly lower or slightly higher, it seemsthat the verdict is now in that you can buy Berkshire Hathaway stock ondays when major pullbacks occur.

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See the full stock holdings as of the last report for Berkshire Hathaway.

Jon C. Ogg
November 24, 2008