Warren Buffett Makes $15 A Second

Never let it be said that Warren Buffett does not know how to make money. Warren Buffett states that his wise investment in Goldman Sachs during the financial crisis is making him $15 a second! That is incredible!

Buffett’s preferred stock investment amounts to

  • $900 a minute
  • $54,000 an hour
  • $1,296,000 a day

The good times will be coming to and end however as Goldman Sachs will be repaying Buffett his $5 billion dollar investment. Don’t feel bad for Buffett as he will receive a 10 percent premium on his investment. Buffet will get a $125 million dollar dividend payment and $24 million dollars in accelerated dividends.

Time To Buy Citigroup

The banking giant is finally starting to become a favorite of analyst everywhere. Rochdale Securities analyst Dick Bove has been bullish on the bank for some time now. Goldman Sachs added Citigroup (C) to its conviction buy list today. Shares of Citigroup responded by rising 2.4% today to close at $4.21 per share.

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Get On Board With Goldman Sachs

What company is the happiest in the world for the BP oil spill?  The answer is Goldman Sachs (GS). Since the oil spill in the Gulf of Mexico, the federal government and national media have shifted their attention to the offshore oil drillers. With Transocean (RIG) and BP (BP) in the crosshairs of federal regulators, Goldman’s shares have finally stopped dropping. Shares appear to have found support at $139.

Goldman’s stock was pummeled as the investment bank’s reputation was dragged through the mud. Now there is news that the government is looking at other financial firms as well. Now Morgan Stanley, JPMorgan Chase, UBS, Citigroup, and Deutsche Bank are also being investigated for fraudulent criminal activities. Now may be a good time for investors to look at shares of Goldman. At $144 a share, Goldman trades at 1.2 times book value. It seems like a cheap price to own a fabulous franchise.

Disclosure: I own shares of Goldman Sachs.

3 Stocks For Long Term Investors

1. AK Steel (AKS) has dropped quite a bit over the last few weeks. The steelmaker has shed almost 25% of its value since April 6th. Shares have dropped due to increasing iron ore prices and a sketchy forecast for the next two quarters. It may take a few quarters for shares to rebound but the current price for AK Steel has gotten my attention. Shares were last trading at $18.91 in the after hours market. Iron ore may cut into the firm’s short term profits but sales are still strong as noted by the Q1 earnings. The lowest analyst estimate for AK Steel’s 2011 earnings is $1.30 which would mean that shares are trading at 14.6 times earnings even with the most pessimistic forecast.

2. Goldman Sachs (GS) is in the midst of a media nightmare. The investment banking firm is facing potential lawsuits and tighter regulatory scrutiny. Investing in Goldman is a long term endeavor. It may take a year or a year and a half but Goldman will survive the media storm and find a new way to boost earnings. Goldman is always ahead of the curve and there is no doubt that the firm’s trading desk will find new ways to make money. If investors get a chance to buy shares anywhere near the $115 warrant price that Buffett owns, then they should buy shares.

3. Citigroup (C) is finally looking like a good buy. Wait for the government to unload its shares onto the market. As the government unloads stock, shares of Citigroup should decline giving investors an opportunity to buy. The government is preparing to unload its 27% stake in Citigroup beginning with the sale of $7.7 billion shares in Citigroup stock soon. The government will make a profit as long as shares are sold above $3.25. Investors should be able to buy the stock in the mid to high $3 range.

Disclosure: I own shares of Goldman Sachs. I previously owned AK Steel but sold off my position at $25.

 

Photo by: TreyDanger

Warren Buffett’s Big Bets Continue To Pay Off

Warren Buffett’s Smart Investments

Any list of great CEO’s would not be complete without Warren Buffett. Buffett is the head of Berkshire Hathaway and the namesake for this blog. Berkshire Hathaway is the holding company for Geico, Dairy Queen, Nebraska Furniture Mart, Burlington Northern, and a number of subsidiaries.

The Oracle of Omaha is still one of the greatest investors around. With so many pundits claiming the demise of Buffett’s investment prowess; Buffett just continues to make shrewd investments. How about his investment in Goldman Sachs (GS) when the investment bank was desperate for capital? His $5 billion dollar investment looks pretty smart now even with Goldman’s government problems. How about his $3 billion dollar stake in General Electric (GE) during the financial crisis? While the warrants are still underwater, the 10% dividend on preferred shares has paid off nicely.

His company, Berkshire Hathaway (BRK.A) has made millionaires out of many investors over the past 25 years. Shares have skyrocketed from $7,100 in 1990 to over $118,280 in 2010. The stock has performed well in recent years also. Berkshire Hathaway has returned 98.12% to shareholders over the past decade. Buffett’s shareholder meetings are legendary with investors trekking to Nebraska annually to hear the financial wisdom of Buffett. While insurance companies like AIG needed government bailouts to stay afloat; Berkshire Hathaway has not needed one dime from the government. This is because Buffett has managed to properly manage risk. The firm has made some poor bets on derivatives in the past but did not allow these bets to jeopardize the underlying businesses.

This outstanding performance comes at a cheap price. The world’s third richest man is arguably the most underpaid CEO of any major company. Buffett takes home just $100,000 annually in salary. Buffett’s salary has been the same for the past 25 years. His total compensation comes in at just over half a million a year with over $300,000 being spent on personal security to protect Buffett. Buffett is generous with both his time and money. He has pledged to donate 85% of his wealth to charitable causes and shares his insights with young investors.

I do own shares of Berkshire Hathaway Class B stock.

 

Photo by: Ethan Bloch

Earnings Seasons for Financials

Here’s my take on each of the financial companies earnings:

 

Goldman Sachs

It was a great quarter for Goldman Sachs. The investment bank had huge gains from its trading operations and bond offering business. I know that everyone is saying buy Goldman right here and now but I wouldn’t buy the stock at its current levels. The stock is trading at $150 and I would like to know more about the investment bank’s business model will be going forward. Goldman appears to be taking great risks again. Will Goldman’s trading operations be as profitable quarter after quarter? 

 

JPMorgan Chase

JPMorgan Chase had a mixed earnings season. The banking giant saw its margins, trading and deposits go down. JPMorgan increased its loan loss reserves for the quarter as its loan portfolio saw increasing delinquencies. JP Morgan did have strong results from its commercial banking and asset management businesses. Analyst Dick Bove says “The reality is that this was a very bad quarter for JPMorgan Chase.” “Capital gains are the reason for the strong revenue and earnings performance and these are not sustainable.”

 

Bank of America

B of A is my favorite bank because of the upside potential but it is also the bank with the greatest downside risk. Bank of America’s earnings were boosted by its sale of China Construction Bank Corp and its strong deposit base. But the nation’s largest bank is still facing rising charge offs from its commercial, residential and credit card loans. CEO Ken Lewis stated that ”Profitability in the second half of the year will be much tougher than the first half.” He attributed much of the bank’s success to capital gains.

 

Citigroup

I think that Citigroup still faces the same problems that have plagued the company for years. Citi does not have core businesses that make money. If you factor out the sale of Smith Barney to Morgan Stanley, Citi would have lost 2.4 billion in the second quarter. While JPMorgan Chase, Goldman Sachs and Bank of America were all able to generate substantial gains from trading operations, Citi was unable to do the same. The promising news for Citi is that CEO Vikram Pandit stated that troubled asset write downs “may be largely behind us.”  This may be true but I still wouldn’t buy Citi even at $2 per share.

 

Short Term Outlook for 2009

The banking giants were able to post decent results for the second quarter but many of these gains were attributable to capital gains. It is unlikely that these one time gains will be duplicated in coming quarters. Loan losses will continue to grow as unemployment and income levels continue to drop.

 

Long Term Outlook

When unemployment moderates and the economy rebounds, the earnings power of these mega banks will be realized.

Up…Down…And Back Up Again

Today was a weird day in the market. The Dow opened positive, turned negative and then soared almost 200 points to end the day. The market was fueled by upgrades by analysts to financial stocks Goldman Sachs, Bank of America and JP Morgan. The interesting part is that these stocks have seen extreme run ups from their March lows. Wasn’t the time to upgrade Goldman Sachs to a buy when it was trading below $100? Or Bank of America when it was trading in the single digits? Analysts are often late to the party and miss big moves in individual stocks. They will rate a stock a “buy” after it has had a huge move to the upside. Or rate a stock a ”sell” after the stock has dropped precipitously. It appears that investors are once again chasing stocks based on momentum plays. I find it interesting that as retail investors are buying, insiders are selling shares. I believe that these companies are good long term buys but i would load up on shares at cheaper levels.

Warren Buffett & His 300% Investment Return

Warren Buffett appears to have failed in his attempt to buy Constellation Energy Group (CEG) for 4.7 billion dollars. MidAmerican Energy, Buffett’s company, agreed to purchase CEG for $26.50 a share in September. Constellation Energy terminated this agreement yesterday and accepted an offer from Electricite De Franc(EDF) for 4.9 billion dollars. EDF will purchase 50% of Constellation Energy’s nuclear power holdings and allow CEG to remain an independent company.

I took particular interest in this transaction because I owned stock in Constellation Energy and they are my hometown utility company. You would think that Buffett would be upset about being outbid for Constellation Energy. Think again. Buffett will walk away from his attempted acquisition of Constellation Energy with a 300% return on his investment.

Buffett will receive 418 million dollars in cash, 175 million in termination fees, 460 million in CEG stock and he gets his 1 billion dollar investment back. He will also earn an additional 140 million in interest over the next year while awaiting repayment of his investment. Buffett stands to make over 1 billion dollars on his original investment in less than four months. That is a return of 300 percent on an annual basis.

The brilliance of Warren Buffett is his ability to win in just about every investment that he makes. He buys distressed companies that are selling well below their true value. Buffett has a unique ability to see opportunity where others see calamity. This explains Buffett’s investment of 5 billion dollars in preferred stock and 5 billion dollar in warrants exercisable at $115 in Goldman Sachs. And Buffett’s 3 billion dollar preferred stock investment in General Electric with 3 billion in warrants exercisable at $22.25. Buffett invested in GE and Goldman at a time when they were in desperate need of capital.

Buffett was derided in October for his declaration that he was investing in US companies when others were pulling out. He has been putting money to work while others have fled for the safety of U.S. Treasuries. Time will tell if Buffett’s thesis is correct. Warren Buffett’s recent investment purchases may look risky right now but as history shows you shouldn’t bet against him.

Goldman Sachs

Goldman Sachs reported its first quarterly loss of $4.97 per share today. The loss was actually not as bad as the $5 loss that some analysts expected. The stock is down almost 70% for the year and is currently trading at $70. Goldman’s earnings per share for the year was $4.47 per share vs. $24.73 EPS last year. This means the stock is trading at a 15 multiple. If the company can grow its earnings to even one half of prior years earnings; then the stock could be a bargain. The difficult part is predicting earnings in the future as the company is converting to a bank holding company.

Goldman Sachs

 

I will be keeping an eye on earnings announcements from Goldman Sachs and Morgan Stanley this week. It should give insight into just how bad things are for financial companies. Goldman currently trades at around $68 and Morgan Stanley at $14. Goldman is expected to report its first quarterly loss in 70 years. Analysts think that losses may be high as $5 a share. If earnings are worse than expected there will be a major sell off of financial stocks which may represent a buying opportunity.