From this week's Barrons:
Berkshire daunts many investors because of its high share price and dependence
on the 68-year-old Buffett. These factors, however, shouldn't deter investors,
argues Peter Russ, analyst at Fairholme Capital, a Short Hills, New Jersey, money
manager. He says Berkshire could hit $100,000 a share in the next few years. The
stock now trades for 1.7 times its book value of $38,000, considerably below
American International Group, which changes hands at over 4 times book.
Russ admits that Berkshire may be "stuck in neutral" for the time being, but he
says it has always paid to buy Berkshire whenever its stock has dipped. Berkshire
does face a couple of issues. The company's investment portfolio is having a rare
down year because of declines in Coca-Cola, Gillette and Freddie Mac, three of its
four largest holdings. Geico, Berkshire's auto-insurance unit, is sacrificing current
profitability in a breakneck expansion effort. Geico had no operating earnings in
the first quarter, compared with $61 million a year earlier. And Berkshire's
purchase of the giant reinsurer General Re, widely regarded last year as a coup for
Buffett, has proven rocky so far, even raising questions as to whether General
Re's management hid problems from Buffett. General Re took a $275 million loss
provision for a workers-compensation-insurance pool last year, and it booked an
underwriting loss of $136 million in the first quarter. Moreover, General Re's big
bond portfolio has suffered at the hands of rising interest rates this year. |
