Thursday, July 8, 2010

Analyst Who Downgraded Berkshire Hathaway to "SELL" Answers Some Questions (BRK.A; BRK.B)

A first rate bit of journalism, from MarketBeat:
It takes a brave soul to say “Sell Berkshire Hathaway.” According to Thomson Reuters, we haven’t had a “sell” on the stock since back in 2006. But equity analyst Meyer Shields of Stifel Nicolaus slapped the dreaded sell on Warren Buffett’s baby Thursday, citing economic weakness and the potential “double whammy” that the recent stock market correction might mean for Berkshire’s equity portfolio and derivative positions. (He previously had the stock at “hold.”)
Berkshire has weathered the recent stock correction well. The shares are up about 1%, since the April 26 peak in the Dow Industrials. The Dow is down roughly 9% since then. Mr. Shields was good enough to answer a few impertinent queries from MarketBeat via email. Here’s our exchange:

Q: Meyer, thanks a lot for taking the time to parry a few of our questions. First things first, does it feel strange to hit the sell button on Buffett?
A: It does, because it sounds like I’m saying that I know more about investing or markets than Buffett does, which is nuts. All I’m saying is that I think the share price underperforms in the near-term.

Q: And from the looks of your note, you’re not saying that the Buffmeister has lost his edge. A lot of your analysis is about your outlook for the economy right? So, put simply: The slower the economy, the slower the results at all the multivarious businesses Berkshire owns?
A: With the exception of insurance, which is pretty well-insulated from the economy, yes. Berkshire’s more exposed to homebuilding and less exposed to technology than the overall economy, but the bottom line is that if unemployment stays high, spending stays low, both for the U.S. in general and Berkshire in particular.

Q: So, if a weak economy is bad for both Berkshire and the U.S. in general. Why would Berkshire underperform in the near-term?
A: On top of its own businesses’ exposure to the economy, Berkshire sold some equity index put options that are marked to market every quarter, so its book value gets hit twice....MORE
"Berkshire Cut by Stifel on ‘Blah Shaped’ Recovery" and "Buffett: Double Dip Recession is Unlikely" (BRK.A; BRK.B)