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Berkshire Hathaway; 2nd Quarter 2013 August 22, 2013

Posted by shaferfinancial in Uncategorized.
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Berkshire remains by far my biggest holding. Here is a brief description of it’s 2nd quarter.

Ultimately, all companies are judged on profits or earnings:

Net Earnings 2nd Quarter= $4541 an increase of 46% over the year before.
Because of the derivatives owned and the accounting of it individual quarters can vary considerably.
Net Earnings Quarter 1 and 2 2013= $9,433 an increase of 48% over the year before.

Since Berkshire now owns outright many businesses and those wholly owned businesses are now a bigger profit center than the investment portfolio, earnings from operations becomes a more important metric to pay attention to.

Earnings from operations 2nd Quarter= $3,919 an increase of 5% over the year before
Earnings from operations Quarter 1 and 2= $7,701 an increase of 21% over the year before
All three major categories [insurance underwriting, insurance investment income, non-insurance businesses] have improved compared to 2012.

I have commented that Berkshire is a cash flow machine.

For the first 6 months of 2013 net cash flow from operating activities was $12.944B an increase of 36% from the year before.

Warren Buffett has been putting capital to work as the cash/cash equivalents has dropped to $35B from $46B.

Since Berkshire’s investment portfolio still obtains the majority of attention some comments are in order.

The investment portfolio still is highly concentrated:
Even though it owns 42 stocks for an approximate value of $89B, the top 5 stocks make up 72% of the value of its portfolio. These stocks are Well’s Fargo [WFC], Coca-Cola [KO], International Business Machines [IBM], American Express [AXP] and Proctor & Gamble [PG]. The only stock of the big five that any action occurred last quarter was purchasing of more Well’s Fargo.

Also must be noted that 2 of the big five are financial companies. Stocks many “experts” still warn against owning. 2 produce staples that are used by folks around the world and 1 is a tech company.

Given the size of the portfolio it is hard to imagine a more concentrated portfolio is possible.

There is in every quarter breathless discussion of what Warren buys and sells, but it is really much about nothing because most of the action in the portfolio is on the tail end [the bottom 20% of value].
To this end it initiated positions in Suncor Energy [SU]and Dish Network [DISH] and continued unwinding positions in Moody’s [MCO] and Kraft, Inc. [KRFT].

The stock price at the end of the 2nd quarter was $169,622 an increase of 27% from the end of 2012.

Currently the stock price is $172,385. At that price the P/E is 15.8.

Given the growth of earnings and cash flow Berkshire still remains undervalued in my opinion.

This is a long term hold for me that was acquired from approximately 1997 until 2009.

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Comments»

1. Ben - October 3, 2013

Hi Dave! Love the blog. I am researching more into BRK. I don’t hold any at this point. I am considering averaging into a position, (maybe small purchases each month), with cash in a non tax advantaged account. Would you recommend a strategy like that at this time, or do you feel the stock has run up and gotten a little ahead of itself this year? (up 27% YTD.) Thanks

shaferfinancial - October 4, 2013

Ben, the short answer is yes. I think that the stock has moved from severely undervalued to either slightly undervalued or fairly valued. Either way, for long term investing it is the safest stock to own. Berkshire owns outright close to 60 companies and have significant stock ownership in around 20 more. It produces cash at a very high rate and is able to put that cash to work productively. Since it doesn’t pay dividends there is no short term tax consequences. It will probably take a short term hit when Warren Buffett steps down or dies, but that doesn’t effect its ability to produce cash flow. I have been in it since the late 1990s and am very pleased so far.


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