After recently trashing the stock of Berkshire Hathaway just six months ago in December, Barron's is now making a case for its purchase with an article entitled "Cheap Stock?" To their credit the stock has sold off since December. This comes after an article a few weeks ago entitled "The Next Buffett," which discussed how David Sokol, the chairman of MidAmerican Energy, a Berkshire unit, is now the most likely successor to Buffett to be CEO of Berkshire - and more importantly, how he is probably ready for the job. Not wanting to flip-flop too much, or at least provide some balance, this week's issue also has an interview with Doug Kass, the popular short-selling hedge fund manager who is still bearish on Berkshire stock, and has also reiterated this view.
While the criticism of Berkshire has varied over the years, the issues of the exposure of the company to its insurance business and that of Buffett's age are still often cited as reasons for selling and staying out of the stock. As for the insurance business, its impact seems to show up in October, as seen in the weekly chart below (from stockcharts.com), although this is simply a three year view and anecdotal. Nonetheless, for the past three Octobers, after the annual hurricane and storm season is over - and the quarterly results begin to show how much of the float is left for Buffet to invest, the stock will often have a nice end of the year rally before leveling off or making a slower accent to the next October.
The difference of course has been this year, where the stock has sold off and been more volatile after the December Barron's article, and recent news of other hedge fund managers, such as Kass, taking a short position in the stock. The latest positive article and opinion from Barron's may stem the tide, but many of the short-sellers remain. Even Buffett at the recent "Woodstock for Capitalist" shareholders meeting in May alluded that Berkshire may under-perform (at least its historical self), and there may therefore be better opportunities elsewhere. But then again, Buffett is known for lowering expectations and faining a sense of weakness, only to later make large acquisitions and investment, such as the recent decision to help finance the Mars acquisition of Wrigley, while taking a small position for himself.
While it is difficult to value Berkshire Hathaway, compared to some other public companies, and even more difficult to predict where Buffett is deploying his capital - at least until the quarterly reports are released, it does appear that the recent sell-off of the stock has taken some of the "Buffett premium" out of the stock.
