FRI, SEP 09, 2022
Analyst recommends short-term bet against Berkshire
Berkshire Hathaway is on KBW's list of top investment ideas going into the end of the year, but it is not a bullish call.
Meyer Shields at Keefe, Bruyette & Woods predicts the stock will be going down in the short-term, so he thinks there's money to be made by selling it short.
(Short selling involves borrowing shares of a stock you expect will fall, and selling them immediately. The goal is to buy the stock back at a lower price and use those shares to repay the loan.)
Meyer cites three negatives for Berkshire:
Slowdown for buybacks: "BRK’s characteristically conservative investment strategy—combined with recently-recovered equity values—implies limited share repurchases and net equity purchases in 2H22, which we believe aren’t fully contemplated in investor expectations."
Macroeconomic weakness: Many of Berkshire's operating businesses sell to consumers, and those companies will be especially affected if the Federal Reserve's anti-inflation interest rate hikes put the nation's economy into, or at least close to, a recession.
GEICO's struggles: "Notwithstanding stabilizing used vehicle and rental car costs, still-rising labor and auto part cost inflation and the delayed impact between filed, written, and earned rate increases imply limited top-line growth and underwriting margin pressure, likely subsequently exacerbated by rising marketing spend."
Shields acknowledges it's a short-term trading call, and he's not recommending that investors in for the long haul should sell.
KBW has a "market perform" rating on Berkshire, (it will do about as well as the overall stock market), and a 12-month price target of $535,000 for the Class A shares.
That would be a 24% increase from today's close of nearly $430,000 per share, and is less than 2% below its 52-week high of around $544,000 in late March.
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BERKSHIRE'S TOP U.S. STOCK HOLDINGS - Sep. 9, 2022
Berkshire's top holdings of disclosed publicly-traded U.S. stocks, and BYD, by market value, based on today's closing prices.
Holdings are as of June 30, 2022 as reported in Berkshire Hathaway’s 13F filing on August 15, 2022, except for:
Apple, Bank of America, Chevron, and U.S. Bancorp, which also include shares held as of June 30, 2022 as disclosed in New England Asset Management’s 13F filing on August 15, 2022
- BYD, which is as of September 1, 2022
Occidental Petroleum, which is as of August 8, 2022
The full list of holdings and current market values is available from CNBC.com's Berkshire Hathaway Portfolio Tracker.
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-- Alex Crippen, Editor, Warren Buffett Watch