Stars in alignment over Omaha
By Mark Hulbert, CBS.MarketWatch.com
Last Update: 12:20 AM ET Jan. 23, 2004
NEWS FOR BRKB
Newsletters give many reasons for liking Berkshire Hath
Look to the companies with a compelling battle cry
Barron's: Buffett content to sit on stock sidelines
More news for BRKB
Indeed, with nine newsletters currently recommending Berkshire Hathaway (BRKB: news, chart, profile), the stock is not even at the top of the newsletter industry's most recommended list. (That honor belongs to (PFE: news, chart, profile) Pfizer.)
But here's what I don't recall ever seeing before: A stock being recommended by so many different types of newsletters for so many different reasons.
Currently, both value-oriented newsletter editors who base their recommendations on fundamental analysis, as well as technically oriented editors who focus only on price charts, are favoring the stock.
Even a newsletter that specializes in technology stocks is recommending Berkshire Hathaway.
Of course, the least surprising rationale for investing in Berkshire Hathaway comes from value-oriented investors. Warren Buffett, the company's CEO, was a disciple of Benjamin Graham, the godfather of value investing. Buffett's investment approach is often considered to be synonymous with value investing.
Furthermore, according to several of the valuation ratios employed by value investors, Berkshire Hathaway is itself undervalued.
Currently, for example, the stock's price/earnings ratio based on trailing earnings is 18.42, a little more than half the (SPX: news, chart, profile) S&P 500's trailing P/E of 33.11.
Buffett has been enormously successful in his application of value investing. It's because of this impressive long-term record that the editor of a tech-oriented newsletter felt he had to own it -- even though Berkshire Hathaway is by no stretch of the imagination a tech stock and Buffett himself has on the whole been unimpressed with technology stocks.
As Randy Williams-Gurion, editor of Tech Stock Insights, wrote (cryptically) when he decided to add Berkshire to his model portfolio: "Must own; world's greatest investor."
However, what is perhaps the most surprising rationale for buying Berkshire Hathaway is its chart pattern, since Buffett's approach couldn't be more diametrically opposed to technical analysis in general and charting in particular.
Yet this was one of the primary reasons that subscribers to the Wall Street Winners newsletter were given earlier this week to purchase the stock. Elliott Gue, Ivan Martchev and Yiannis Mostrous edit the newsletter. They wrote, "Berkshire's long-term chart is quite possibly the most bullish of any large-cap issue anywhere in the world."
A price chart of Berkshire Hathaway's stock since the beginning of 1995 is reproduced below, so you can see what this trio is referring to. (The chart is of the firm's Class A shares; its Class B shares are identical except that they represent a smaller share of the overall company and therefore trade for a lot less per share -- $2,950 per share as of Thursday's close, instead of $88,500.)
"The most striking feature of Berkshire's long-term chart is that the stock is at all-time highs. While there are many smaller stocks near historic highs, Berkshire is the only stock in the world with a market cap above $100 billion that currently has that distinction..."
"Discounting the brief foray below $55,000 in 2000, Berkshire has been consolidating between about $55,000 and $80,000 since 1998. That basing period was broken to the upside in 2003 as Berkshire moved above its 2000 highs of about $81,000.
"Since that time, Berkshire's breakout has held firmly and the stock will find support on any dips toward 80,000. Given the length of the consolidation in the stock and the extreme relative outperformance it's showing, this looks like the beginning of a major rally that'll take the stock to over $105,000 per share in the next few years."
I do envision one problem in the event that Berkshire Hathaway does perform this well in coming years, however: Will its success be considered a victory for value investing or for technical analysis?
Who knows? Fortunately, we can wait until then to cross that bridge. |
