Buffett’s Problem September 27, 2011Posted by shaferfinancial in Finance.
Tags: Berkshire Undervalued, Warren Buffett Buyback
Warrren Buffett has a huge problem. You see his company has been producing so much cash that he is now sitting on a hoard of cash. He just bought another company Lubrizol for $9B, and is looking at another, Transatlantic, but he still is sitting on $43B in cash. On top of that Mr. Market has lowered the value of Berkshire down to almost book value.
What to do? Well he has told the market that he will repurchase stock at up to 10% above book value [Somewhere around $109,000 per A share]. In his statement he basically says that the stock price is a screaming buy according to his conservative analysis.
Since the announcement the stock has been going up [Now over $110,000] just like it did in 1999 when he made a similar announcement. But what he has done is simply put a floor on pricing for the time being.
Buffett could easily buy $20B of his stock if the price warrants it. That’s alot. And every month Berkshire produces over $1B more in cash!
Are people out there really willing to bet against the skills of Buffet in valuing companies and making good deals?