According to Meyer Shields of Stifel Nicholas, Now Is The Time To Sell Berkshire Hathaway. Shields believe that shares of Berkshire Hathaway are overvalued and are due for a dip. Berkshire Hathaway has been in the news a lot recently as analysts and pundits have thrown out different suggestions as to what Berkshire should do going forward.
There are growing rumblings that Berkshire Hathaway needs to make a few strategic moves if the company is going to remain a core holding of long term investors.
Berkshire Hathaway Dividend?
Some experts say that it’s time for Berkshire Hathaway to pay a dividend. The company has $34.46 billion dollars in cash and $17.65 billion dollars in free cash flow. Some say that this money should be returned to shareholders. I have a hard time seeing Buffett paying a regular quarterly dividend to shareholders. It would be seen as a sign of surrender with Buffett resigned to the fact that Berkshire’s acquisition and growth days are over.
There is another faction calling for Berkshire to be broken up so that shareholders will gain greater value. There are calls for Berkshire to separate its insurance holding from its other equity holdings to protect its equity portfolio.
Sell Berkshire Hathaway?
Shields is one of the few analysts that I have seen will to place a sell rating on Berkshire. He believes that investors are no longer willing to pay a premium for the privilege of investing with Buffett. Here is his reasoning.
“With the exception of insurance, which is pretty well-insulated from the economy, yes. Berkshire’s more exposed to homebuilding and less exposed to technology than the overall economy, but the bottom line is that if unemployment stays high, spending stays low, both for the U.S. in general and Berkshire in particular.”
“I think we’ll see bigger reactions to good and bad quarters than we’ve seen in the past.”
Shield has turned bearish on Berkshire despite Buffett’s knack for making money investing in stocks. He first made his call last summer and is still sticking to it. So, is Shield right?
Is Berkshire Overvalued?
Shares currently trade:
- just under 17 times earnings
- 1.3 times book value.
- 1.5 time sales
- 11 times cash flow
- 3.5 times earnings growth projections
Many of the financial ratios show that the stock is not too expensive. The P/E ratio, book value, price to sales, and cash flow ratios are all lower than the company’s 5 year historical average.
Berkshire has increased revenues +4.5% over the past 3 years and +8.6% over the past 5 years. EPS was down -10% over the past 3 years and increased +1.79% over 5 years. Return on equity is at 8.4% and return on invested capital is at +6.2%. Return on assets has risen to +3.5%.
This time I am going to save my opinion. I want to get yours first. What do you think? Is now the time to sell Berkshire Hathaway? Buy, Sell, or Hold?
Disclosure: I do own shares of Berkshire Hathaway.