Why Berkshire Is A Bargain

Whether or not they pay attention to the “barrage of folksy aphorisms” that will be offered at Berkshire Hathaway’s upcoming annual meeting, investors should pay attention to Berkshire’s stock, Michael Brush says.

“Yes, Warren Buffett’s a fascinating person, but what’s more important to investors is that Class B shares of Berkshire Hathaway Inc. look downright cheap following a four-month retreat, at a time when it’s hard to find any stock bargains, Brush writes for MarketWatch. “And the shares offer an attractive risk-reward balance in a market that looks precarious.”

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Brush, who writes the Brush Up on Stocks newsletter, offers a few interesting ways to look at the value of Berkshire’s shares. “The value of Berkshire’s holdings in publicly traded stock, along with its bonds, cash and the companies it owns outright, comes to roughly 1.7 times book value, calculates Steven Check of Check Capital Management,” he writes, for example. “That works out to about $168 a share. Instead, the stock trades for 1.45 times book, or about $142 a share.”

Brush also says that several reasons investors often cite for not investing in Berkshire are “myths”. Among them: the idea that Berkshire’s size and insurance businesses make it difficult for the company to continue to grow at a good pace. That school of thought is “a big mistake, says Todd Lowenstein, portfolio manager and director of research at HighMark Capital Management,” Brush explains. “He points out that 70% of Berkshire’s businesses are outside of insurance, in manufacturing, services, retail, home building, railroads and utilities. Many of those businesses are fairly small and have plenty of room to grow. They are also economically sensitive, which means they will do well as the economy continues to improve.”