Tag Archives: Buffett

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.

Warren Buffett Remains Optimistic On Housing And How To Benefit From It

10 August 2012-

Warren Buffett’s Berkshire Hathaway (BRK.A) saw its recent profits fall 9% on losses from its derivatives portfolio. However, these derivative losses are unrealized (i.e. he has not sold the position) and are long term positions in equity indexes in US, Europe and Japan with a maturity date of 2018 and later. Buffett, outspoken on the problem with financial derivatives, has stated he will not likely be increasing additional derivative positions due to changes in financial accounting for derivatives.

While Buffett may not be purchasing more derivatives, these positions do represent a traditional view of this value-orientated investor; Buffett expects US, Europe, and Japan indices to see growth in the upcoming years. A simple strategy to mimic these expectations would be to purchase index ETFs, which is nothing new, or we can take a look into two sectors below that Buffett expects to benefit greatly from an increase in economic growth.

Housing: Last month, Buffett expressed increasing optimism toward the US Housing market in general. Granted, there are still weaknesses, but it’s clear that Buffett expects this sector to rebound in the next couple of years (remember, this value-orientated investor rarely likes to make 3 month speculations). Real-estate indices including the S&P/Case-Shiller 20-City have shown consecutive month to month growth after a prolonged trough. Berkshire Hathaway’s positions also include that of Clayton Homes, which builds, sells, finances and insures manufactured homes. Continued housing growth would help drive overall economic growth in the United States.

Buffett was recently quoted saying Europe’s financial issues are having a negative impact on United States and that weak residential housing is holding back growth. However, Buffett’s recent bid to purchase large amounts of distressed housing loans from ResCap’s bankruptcy offering show another story. Should he win the bidding, this would offer Buffett a large portfolio of loans (approximately 4 billion) that could see considerable upside if the housing market recovers. It appears that Buffett does think housing will recover and feels now that is a great time for purchase cheap assets.

Positions that would benefit from an increase in housing include Caterpillar (CAT) and Wells Fargo (WFC). Wells Fargo is the largest US Home Lender and Buffett’s 2nd largest position.

Transportation/Railroads: Another sector that would benefit heavily from US Economic growth is transportation. Buffett made headlines for his 2009 bet to buy-out BNSF (Burlington Northern Sante Fe Corp). This bet, the largest bet that Buffett has made, is making a prediction that when (and not if) economic growth comes roaring back, it will take the railroad and freight movement with it. Because the United States produces so many economic goods that must be transported, railroads can be more efficient than trucking in moving large quantities of goods across long distances. Buffett’s 2011 purchase of Lubrizol (engine and machinery lubricant) for $9 billion showed that Buffett expected engine and machines usage to increase (often a proxy for economic growth). Lubrizol also provides goods to emerging markets which are likely to see increased demand.

The transportation industry has recently seen a change in commodities it services. The recent use of cheaper natural gas has resulted in lower coal demand. Coal, which is largely transported by railroads, have thus impacted revenues of BNSF and its competitor Union Pacific Corp (UNP).

However, while usage of coal has dropped for these transportation stocks, the amount of business from shale, crude oil, and petroleum related shipments has increased dramatically. Demand for coal still remains as a crucial transportation driver, but increased demand for shale-related products is expected to see double-digit growth in the upcoming years. Whether the increase in demand for shale will off-set the diminished demand for coal remains to be seen, the transportation industry will likely see strong growth if US economic growth picks up.

Positions that would benefit stronger economic growth and increased demand for shale include mid-west Union Pacific Corp who are trying to capitalize on shale demand. Other railroad companies may warrant a look, but be aware that not all railroad companies have access to nearby cheap coal to transport. The continued drop in demand for coal would impact railroad companies that transport expensive coal first. Buffett’s 2009 buyout of BNSF deserves much praise; BNSF’s access to cheap and clean coal from the Powder River Basin and proximity to numerous shale fields is looking to be another profitable Buffett investment.

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.