Category Archives: Latest Investments

Refiners Find New Investors in Buffett and Icahn

11 August 2012 –

Gasoline refiners, shunned by investors because of falling demand and rising regulation, now count Warren Buffett’s Berkshire Hathaway Inc. and billionaire Carl Icahn among shareholders as lower oil prices promise wider returns for fuel makers.

Buffett’s Bet

Buffett, Berkshire’s chairman and chief executive officer, said last month in an interview on Bloomberg Television that one of his deputies had invested in Phillips 66, which became the largest independent refiner in the U.S. after the Houston-based company was spun off from ConocoPhillips.

Icahn didn’t respond to a request for comment. Buffett didn’t respond to a request for comment sent to his assistant, Carrie Sova.

New drilling and production techniques used to crack shale rock brought a flood of new gas, deflating prices to a 10-year intraday low of $1.902 per million British thermal unit in April. The same methods now are being used to harvest oil, spurring three straight years of surging output in the U.S., the first time that’s happened since 1985, according to data compiled by Bloomberg.

The renaissance has caused U.S. crude prices to fall below other varieties of oil traded globally, giving refiners with operations near new U.S. oil production the advantage of paying less for each barrel they purchase. Refiners with access to growing supplies from North Dakota’s Bakken shale formation and other northwest oilfields, were the first to benefit.

A Look At Yearly Returns Of Berkshire Top Holdings

10 Aug – 2012-

Performance Review Of Berkshire Hathaway Top Holdings.

1. Coca-Cola (KO)

  • Holding Value: $15.95 billion
  • Shares: 200,000,000
  • Stake: 8.4%

The stock returned 26% over the past 1-year period. Operating and profit margins are 23% and 18%, respectively. There was no fizz in last quarter’s numbers — revenue growth was 2.7%, while earnings were flat. P/E (forward) is 18.3. It has a solid 26% return-on-equity (ROE), a 0.53 beta (stock price is only 53% as volatile as the overall market), and a dividend yield of 2.6%.

2. Wells Fargo (WFC)

  • Holding Value: $13.39 billion
  • Shares: 394,334,928
  • Stake: 7.44%
  • Increased holdings by 10.63 million shares (+3%) since the previous reporting period.

Wells Fargo provides banking service primarily in the US.

The stock returned 50% over the past 1-year period. Operating and profit margins are 38% and 22%, respectively. Last quarter’s revenue increased 5%, while earnings grew 17% — a nice widening of margins. P/E (forward) is 9.2. It has a beta of 1.3 (stock price is 30% more volatile than market) and a dividend yield of 2.6%

3. IBM (IBM)

  • Holding Value: $12.87 billion
  • Shares: 64,395,700
  • Stake: 5.36%
  • Increased holdings by 489,769 shares (+1%) since the previous reporting period.

Big Blue provides information technology (IT) products and services worldwide.

The stock returned 22% over the past 1-year period. Operating and profit margins are 21% and 15%, respectively. Last quarter’s revenue decreased 3%, while earnings grew 6% — so margins widened, a positive. P/E (forward) is 12. It has a fat 74% ROE (though debt load increases a company’s ROE, so IBM’s fairly sizable debt load makes this number better than it would otherwise be), a beta of 0.67 and a dividend yield of 1.7%.

This stock looks potentially appealing, despite its recent flat revenue growth. It has some solid financial stats and promising future prospects (in artificial intelligence involving its “HAL” robot and data analytics). Apparently Buffett thinks so, too — he only began buying this stock in 2011.

4. American Express (AXP)

  • Holding Value: $8.74 billion
  • Shares: 151,610,700
  • Stake: 13.02%

American Express provides banking and credit card products, as well as travel-related services worldwide.

The stock returned 36% over the past 1-year period. Operating and profit margins are 24% and 17%, respectively. Last quarter’s revenue grew 3%, while earnings were flat. P/E (forward) is 12.3. It has a beta of 1.8 and a dividend yield of 1.4%.

5. Procter & Gamble (PG)

  • Holding Value: $4.85 billion
  • Shares: 73,254,136
  • Stake: 2.71%
  • Decreased holdings by 3.5 million shares (-5%) since the previous reporting period.

P&G is a global consumer products company.

The stock returned 15% over the past 1-year period. Operating and profit margins are 18% and 13%, respectively. Last quarter’s revenue decreased 3% while earnings grew 45% — so margins widened, a positive. P/E (forward) is 16. It has a beta of 0.44 and a dividend yield of 3.4%.

6. Kraft Foods (KFT)

  • Holding Value: $3.19 billion
  • Shares: 78,017,165
  • Stake: 4.33%
  • Decreased holdings by 9.02 million shares (-10%) since the previous reporting period.

Kraft Foods manufactures and sells packaged food products worldwide.

The stock returned a tasty 25% over the past 1-year period. Operating and profit margins are 14% and 7%, respectively. Last quarter’s revenue decreased 4%, while earnings grew 5%. P/E (forward) is 15. It has a beta of 0.53 and a dividend yield of 2.8%.

7. Wal-Mart (WMT)

  • Holding Value: $3.46 billion
  • Shares: 46,708,142
  • Stake: 1.14%
  • Increased holdings by 7.67 million shares (+20)) since the previous reporting period.

Wal-Mart operates discount stores under the Wal-Mart name and warehouse club stores under the Sam’s Clubs name. It’s been making further headway into the financial services arena in recent years.

The stock returned 55% over the past 1-year period. Operating and profit margins are 6% and 3.5%, respectively. Last quarter’s revenue grew 8.5%, while earnings grew 10%. P/E (forward) is 14. It has a beta of 0.41 and a dividend yield of 2.2%.

8. US Bancorp (USB)

  • Holding Value: $2.28 billion
  • Shares: 69,039
  • Stake: 3.61%

U.S. Bancorp provides banking and financial services in the US.

The stock returned 57% over the past 1-year period. Operating and profit margins are 43% and 30%, respectively. Last quarter’s revenue grew 9%, while earnings grew 18% — so margins widened, a positive. P/E (forward) is 11. It has a beta of 1.0 and a dividend yield of 2.4%.

9. Johnson & Johnson (JNJ)

  • Holding Value: $1.98 billion
  • Shares: 29,018,127
  • Stake: 1.06%

Johnson & Johnson is a global health care products company.

The stock returned 16% over the past 1-year period. Operating and profit margins are 25% and 13%, respectively. Last quarter’s revenue decreased 1%, while earnings dropped 50% — so margins narrowed, a negative. P/E (forward) is 12.5. It has a beta of 0.55 and a dividend yield of 0.6%.

A red-flag on this one is the good number of quality control issues over the recent couple years.

10. ConocoPhillips (COP)

  • Holding Value: $1.64 billion
  • Shares: 29,100,937
  • Stake: 2.25%

ConocoPhillips is involved in the exploration, production and transportation of crude oil, natural gas, natural gas liquids, liquefied natural gas and bitumen throughout the world.

The stock returned 25% over the past 1-year period. Operating and profit margins are 9% and 5%, respectively. Last quarter’s revenue decreased 17%, while earnings dropped 33%. P/E (forward) is 10. It has a beta of 1.1 and a dividend yield of 4.7%.

I’d stay away from this one. It has a 5-year PEG of -5, meaning analysts expect negative earnings growth over the next five years.

And here’s a bonus…

11. DirectTV (DTV)

  • Holding Value: $1.14 billion
  • Shares: 22.999,600
  • Stake: 3.51%
  • Increased holdings by 2.65 million shares (+13%) since the previous reporting period

DirectTV provides digital TV primarily via satellite in the US and Latin America.

The stock returned 18% over the past 1-year period. Operating and profit margins are 17% and 9%, respectively. Last quarter’s revenue growth was 10%, while earnings grew 1% — so margins narrowed, a negative. P/E (forward) is 9.5. It has a beta of 0.96.

Decoding Buffetts Ejection From Consumer good Stocks

8 August 2012-

In 2009 Buffett had predicted that the economy was at its rock bottom and the only thing left was the market to go up. And its also true that since then the Dow has jumped 36 %. Recently, Buffett has complained of disappointing performance at some of the more consumer-oriented holdings of his Berkshire Hathaway (BRK-A) (BRK-B) investment vehicle — stocks such as Johnson & Johnson (JNJ), Procter & Gamble (PG), and Kraft (KFT). Now, in a regulatory filing dated Aug. 3, Berkshire is reporting about a 21% reduction in the amount of consumer products stocks it holds, even as it ups its exposure to banking, insurance, and industrial stocks.

Crunching the numbers earlier this week, Bloomberg concluded that Buffett appears to be reducing his “bets on consumer-products stocks.” If that’s what he is in fact doing, then this might bode poorly for an economy that depends on consumer spending for 70% of its growth.

Appearances Can Deceive

But the operative word here is “if”: If Buffett thinks a double-dip recession is imminent, and if he’s selling consumer stocks to avoid taking a hit, that would be bad news for our economy.

But what if Buffett has a different reason for selling his stocks? Some folks think that’s a more likely explanation.

Buffett biographer Andrew Kilpatrick, for one, thinks Buffett may be preparing to “fire at an elephant” — a euphemism referring to the megadeals Buffett has favored when spending Berkshire’s cash of late. At the Berkshire shareholder meeting in May, Buffett let slip that he’d been eyeing one big potential acquisition valued at roughly $22 billion. That deal ultimately didn’t happen — but maybe Buffett just needed a bigger gun.

Is he getting the big guns ready

It is quite possible that Buffett might be selling to build up for a massive cash reserve in order to go for some real big game hunting. Recent estimates put Berkshire cash reserves at around 40 Billion $, an increase of 2.8 Billion $ over the previous quarter.

But what could he be looking at?.

Run for the border: One thing’s for sure about Buffett: He’s no fitness fanatic. To the contrary, his fondness for cheeseburgers and Cherry Coke is legendary. Now that he has a little extra spending money jingling in his pocket, he might decide to take a look at YUM! Brands (YUM), owner of Taco Bell and KFC.

Buffett’s unlikely to balk at health guerillas’ objections to fast food. To the contrary, he’d more likely cheer the success Taco Bell has had serving less-than-organic Doritos-flavored taco shells. Still, the stock’s at the upper range of his spending limit with a market capitalization of just more than $30 billion.

• Trainspotting for bargains: But I think we can spot a better bargain. We all know how Mr. Buffett loves trains. (What growing boy doesn’t?) His purchase of Burlington Northern Santa Fe in 2009 made Berkshire one of the nation’s leading railroad operators. Today, for the low price of just $24 billion, he can expand his train set with the acquisition of either Norfolk Southern (NSC) or CSX (CSX). Plus, both stocks sell for P/E ratios of less than 13 — considerably cheaper than what Buffett paid for BNSF three years ago.

• An insure thing: Still, as much as he loves his trains, Buffett’s first love has always been insurance. For this reason, he may be particularly interested in insurer AFLAC (AFL), a relative bargain at just eight times earnings and even more affordable than the railroads — just $21.4 billion. As an added bonus, AFLAC would fit in nicely with Berkshire’s GEICO business.

• A deal that just might fly: Similarly, Buffett could find synergies with a purchase of defense contractor General Dynamics (GD). While suffering from a downturn in demand for armored fighting vehicles, America’s biggest tank maker has been sold down to bargain-basement levels — just nine times earnings. Buffett loves a bargain as much as anyone else. Plus, General Dynamics also makes Gulfstream business jets — the kind that fly so well for Berkshire’s “NetJets” airplane-sharing company.

A $30 billion-plus bank account opens many possibilities for Buffett. Will he spend it all in one place — perhaps even one of these places? Stay tuned.


Warren Buffett Likes Bank Stocks

25 July 2012
Warren Buffett likes bank stocks, just not investment banks. And for good reason.

By avoiding common stock bets on investment banks like JPMorgan Chase, Goldman Sachs, Citigroup, and Morgan Stanley the “Oracle of Omaha’s” financial sector share investments have greatly outperformed most other investors.

Of course, Buffett made preferred share investments in Goldman and Bank of America during the height of the crisis, but these were essentially super-safe loans that guaranteed a return and did not reflect his common stock plays.

In fact, as Buffett continued to hold banks stocks as a key part of a U.S. economic recovery investment, the value investing guru has kept his chips smartly behind Wells Fargo — which is projected to end 2012 as America’s most profitable bank — even if the battered share prices, titanic balance sheets, and boom and bust earnings of money center giants lure some of the sectors smartest investors into sub-par investments.

Although Buffett’s likely to have about the same insight as the “Average Joe” when it comes to a multibillion-dollar “London Whale” trading loss at JPMorgan, investment bank ratings downgrades, and a market manipulation probe that may start with Barclays and spread across Wall Street, his continued investment in the stability of traditional lenders like Wells Fargo, US Bancorp, and M&T Bank, and an investment in credit-card giants American Express, Visa, and MasterCard have greatly outperformed mega-bank stocks.

Since the 2008 Wall Street crash pummeled most bank stocks and a March 2009 stock bottom led to a tripling of the shares of megabanks like Citigroup and Bank of America, and a doubling of JPMorgan and Goldman Sachs within a span of just over a month, many financial sector investors and analysts forecast that those gains could be replicated.

nstead, the nation’s largest investment banks have underperformed, even as their shares gyrated upwards on misplaced optimism of a durable trading or deal making surge.

From March 2009 to May 2009, the largest investment banks were among the financial sector’s top performers, driving many investors including hedge fund titans John Paulson and David Tepper of Appaloosa Management strongly into the stocks of Citi and Bank of America. Since then, Morgan Stanley, Bank of America, Goldman Sachs, and Citigroup shares have all lost over 15 percent — and are among 10 S&P 500 bank stocks out of 85 in total that have lost double digits since May 2009, according to Bloomberg data.

While JPMorgan has gained over 17 percent since then, the Bloomberg data shows that Buffett financial sector picks like Wells Fargo, US Bancorp, M&T, American Express, Visa, and MasterCard have dramatically outperformed those returns. Wells Fargo is up over 30 percent since May 2009, US Bancorp and M&T have posted over 50 percent share gains, and American Express has doubled. Recent new Buffett financial sector picks like Visa and MasterCard are among the financial sector’s best performers in the past 12 months, posting 40 percent-plus gains to go against the Financial Select Sector SPDR’s [XLF  14.27    0.055  (+0.39%)   ] 2 percent share loss.

The data should tell investors that in spite of the press given to capital markets players with volatile earnings and recently battered share prices, they may be better off following Buffett into less glamorous banks stocks that are exposed to consumer and mortgage lending growth, and credit card names that may track rebounding consumer spending.

Fundamental investors may also have reason to follow Buffett, even if it’s less obvious whether superregional banks are a value investment. Following the results of the U.S. Federal Reserve [cnbc explains] stress tests in March, it was many of Buffett’s investments like Wells Fargo, U.S. Bancorp, and American Express, which led the way on share buyback plans and dividend boosts. Wells Fargo boosted its dividend 83 percent and indicated accelerated buybacks to a program launched in 2011. American Express unveiled a $5 billion buyback program of $5 billion and upped its quarterly dividend. Meanwhile U.S. Bancorp boosted its dividend by 56 percent and targeted $3.3 billion in buybacks.

In buying back stock, banks will lower total outstanding shares, thus boosting the proportion of earnings attributable to remaining shares. Using International Business Machines [IBM  191.08    0.74  (+0.39%)   ] as an example, Buffett explained in his annual letter in February how share buybacks can be a hedge to the prospect that a company’s shares underperform.

“When Berkshire buys stock in a company that is repurchasing shares, we hope for two events,” Buffett explained. “First, we have the normal hope that earnings of the business will increase at a good clip for a long time to come; and second, we also hope that the stock underperforms in the market for a long time, as well.” As a result, Buffett has a fundamental reason not to be concerned if the stock performance of IBM and Wells Fargo — both among his largest holdings with buyback plans — underperform in the near term.

As of March 31, Wells Fargo was Buffett’s second-largest stock investment at $13.2 billion or 7.42 percent of the company’s shares, while he held 13 percent of American Express shares worth over $8.8 billion, and $2.2 billion worth of U.S. Bancorp shares, or 3.6 percent of the company’s float.

But even without Buffett’s buyback math, the expected earnings prospects of traditional mortgage and credit card lenders may trump capital markets-oriented players. In March, we noted that because of Wells Fargo’s near 30 percent annual earnings growth trajectory, Buffett may end 2012 as the largest investor in America’s most profitable bank.

After JPMorgan unveiled a derivatives-related trading loss in May that may exceed $2 billion, Wall Street analyst now project that Wells Fargo will end 2012 as the most profitable U.S. bank, earning $17.7 billion for the year, according to Bloomberg compilations of forecasts. That contrasts to the $17.2 billion in adjusted net income that JPMorgan is expected to earn this year. Wells Fargo will earn the lion’s share of its profit and revenue from mortgage, business and credit-card lending, while JPMorgan’s earnings will be a mix of those businesses and its global investment banking operations.

It’s the distinction between Wells Fargo’s quick earnings ascendance relative to JPMorgan — the longtime profit leader throughout the financial sector — that may best exemplify the simplicity of Buffett’s investing plan relative to the elusive allure of investment banking profits.

JPMorgan, like Goldman Sachs, is undoubtedly a leader in investment banking, with a top three position in most key merger advisory and debt and equity underwriting markets. Still, a near 30 percent year-over-year lull in those businesses means that even top brands aren’t expected to post strong earnings. In fact, it’s the counterintuitive accounting gains that investment banks may post on the falling value of their debt after Moody’s slashed sector ratings that may be among the biggest positive surprises in second-quarter earnings.

Although many, like JPMorgan Chief Executive Jamie Dimon, expect that investment banking revenues will have a big comeback as companies enter a cycle of mergers and initial public offerings [cnbc explains] that was postponed by the European debt crisis and political gridlock in Washington, some think the industry’s woes may be lasting.

“[We] think the slowdown in capital markets revenues is more structural than cyclical,” wrote Standard & Poor’s credit analyst Richard Barnes in a July 2 note that outlined why the ratings agency sees new regulations, high expense and lasting macroeconomic risks as reason to question whether investment banks will even be able to out return their cost of capital in coming quarters and years.

The prospect of trading losses like those booked by JPMorgan and added political and regulatory pressures on the heels of a $450 million fine that Barclays paid to U.S. and U.K. regulators for its manipulation of short-term interest rates, and which cost CEO Bob Diamond his job, augur as added risks. Meanwhile, S&P’s outlook for investment banks is similar to what drove Moody’s to ratings cuts in June.

As it turns out, its Buffett plays like Wells Fargo and U.S. Bancorp remain a source of financial sector strength headed into second-quarter earnings, which are likely to be relatively disappointing. On Thursday, Credit Suisse analyst Moshe Orenbuch cut his earnings estimates for JPMorgan, Citigroup, and Bank of America because of their sensitivity to the weakness of capital markets. Among large-cap [cnbc explains] banks, Orenbuch left his earnings estimates for Wells and U.S Bancorp unchanged, while noting that throughout the industry, weaker capital markets revenue may be offset by loan growth and cost cuts.

Expectations of a housing construction rebound and mortgage demand have even given some reason to expect that Wells Fargo may surprise on the upside for the remainder of 2012. Amid continued uncertainty about the global economy, JPMorgan analyst Vivek Juneka said Wells Fargo was his best large-cap bank investing idea, in a June 2 sector outlook that cited the bank’s mortgage origination and loans businesses as standing apart from peers. Among mid-cap and small-cap banks, JPMorgan analysts highlighted First Horizon National as a top pick.

For those who are ready to throw in the towel on large-cap bank stocks like JPMorgan, Bank of America, and Citigroup, following Warren Buffett’s focus on capital returns, stable business models, and faster-than-industry average growth may be a simpler and more effective strategy.

Source –

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