Is It Time To Sell Berkshire Hathaway?

Buy Berkshire HathawayAccording 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.

Comments

  1. I also think that since Mr. Buffett is very involved in the fund, if anything may happen to him medically, the emotions of the shareholders will run wild. I expect that the trading price would plummet extremely quickly.

  2. avatar Ten Bagger says:

    Many people have declared Berkshire and Buffett/Munger to be overvalued in the past. They’ve said they cannot survive without investing in tech stocks. The reality appears to be that they are in an enviable position spinning off cash year after year and profiting from “boring” investments. The market will misprice this security when Mr Buffett steps away but the culture of this company will likely change very little. I will be a buyer when Mr Market overestimates the loss of the company icon. What the market misses, is that there is an incredible amount of earnings that are not reportable by GAAP and therefore the P/E is irrelevant in this case. A good piece in seeking alpha on this one. http://us.rd.yahoo.com/finance/external/pssa/SIG=129gv0vsf/*http%3A//seekingalpha.com/article/249165-berkshire-hathaway-looks-cheap?source=yahoo

  3. avatar JT McGee says:

    The best “value” play in our lifetime might be snapping up Berkshire when Warren leaves. There has been talk that he’s considering a dividend, basically taking away the buy/sell abilities of the newly installed managers.

  4. avatar MoneyCone says:

    This isn’t the first time analysts have written off Buffett!

  5. avatar Evan says:

    Has Shields been calling a sell signal on BRK for a while? Is it one of those situations that even a broken clock is right twice a day?

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