Buffett back in the batting after 6-year deal drought

In 1998, Warren Buffett lamented the lack of good investment opportunities for Berkshire Hathaway. He waited for what he called His fat pitch, Home transaction. Instead, the generous conglomerate was on the sidelines. “Standing there, day after day, with my bat on my shoulder is not my fun idea,” he said at the time.

This week, for the first time in six years, Buffett decided it was time to make a big dent.

The hit, a A $ 11.6 billion deal Buying the insured toy maker Elegant, ended in a drought that troubled investors and raised questions about whether the billionaire investor has the power to compete with more aggressive private investment bidders. The revelations in previous days also showed Berkshire has built a $ 8 billion stake in oil maker Occidental Petroleum.

Some repurchases Besides, these two deals amount to Berkshire’s largest capital spread since the epidemic shook markets in 2020. They present an investor who finds pockets of value in the US stock market, even as the war rages in Ukraine, which raises the chances of an economic slowdown and more. Inflation.

“Buying Buffett now in the face of all the uncertainty – geopolitical and economic and interest rate uncertainty – is a real vote of confidence in the American and global economy,” said Christopher Rossbach, chief investment officer of J Stern & Co. A veteran Berkshire shareholder. “He tells us he believes there is value and that it is possible to buy companies that will succeed and provide more value than cash.”

The investments, both obtained after Russia’s invasion of Ukraine, are a A change from Buffett’s The approach two years ago, when Cubid-19 spread and the global economy fell into recession.

At the time, he Sold from the airlines And cut his holdings inward Big US banks, Who spent millions of dollars in reserves to protect against potential loan losses. Even when the market rose that year, it remained cautious. He applauded the intervention of policymakers in Washington, but made little of the investment that characterized his behavior more than a decade earlier during the financial crisis, when he wrote loans to blue companies and put Berkshire’s war box to work.

His return to the market this year has signaled to some that he believes the war in Ukraine will not cause the same downturn as the plague.

“Obviously the chances of escalation have increased,” said Edwin Welczek, portfolio manager at Ventoble. “But… Maybe the risk b [Buffett’s] The brain could be quantified more easily than in an epidemic. “

He dives in at a A fickle moment. The stock market fluctuated violently this year, with the average company in Brussels 3000 – an index that includes both large and small businesses – falling more than 30% from recent highs. Investors quickly adjusted portfolios as inflation rose and the Federal Reserve raised interest rates for the first time since 2018 in response.

Berkshire shares, on the other hand, rose 18% this year, well above the S&P 500. In 2021, they rose nearly 30%.

The company has enjoyed market rotation, as investors prefer shares of utility companies, energy companies, industrial product groups and banks over technology companies. It played directly to Berkshire, which has an empire that ranges from the BNSF railroad, to insurance company Geico and its subsidiary Iscar for Metal Works, as well as a $ 351 billion stock portfolio, with billions of dollars in investments in Apple and Bank of America.

This month’s deals are also in line with the slowdown in repurchases of shares, which Berkshire has aggressively invested in when, in Buffett’s words, “alternative ways become unattractive.” He estimated in February that the company spent nearly $ 52 billion on repurchases in 2020 and 2021, but only $ 1.2 billion from January to the end of February this year.

“The stock is not that attractive for repurchase,” said Christopher Bloomstran, Berkshire shareholder president Semper Augustus. This is one of the reasons why Buffett and his investment team are looking outside the company.

Meyer Shields analyst at KBW said the deals showed Berkshire management “sees opportunities”. He added that they “will not detract from Berkshire’s ability to make an elephant-sized deal,” given that the company had $ 146.7 billion in cash at the end of last year. Its subsidiaries throw away more than $ 100 million in cash every day.

Elegant and Occidental were well-known companies for Berkshire long before the recent investments. Elegant, property and casualty insurance and reinsurer, has long been described as a mini-Berkshire Hathaway. Its CEO, Joseph Brandon, was a former CEO of Berkshire’s subsidiary, General Re. Buffett called him an “old friend” when he announced the deal.

“Warren Buffett loves to invest in his circle of abilities and no doubt he has followed this company for decades,” said Matthew McLean, portfolio manager at First Eagle Investments, a company that owns Berkshire shares.

His connection with Occidental returns At least until 2019, then Buffett agreed to provide $ 10 billion to help the oil and gas company hostile takeover of Anadarko Petroleum. That deal, in a sector that Berkshire only occasionally turns to, still had many of its classic hallmarks: cost-effective takeover financing that was used by the company in part for Buffett’s approval stamp.

Investors said this week that they were interested in seeing the company’s next quarterly stock releases, due out in mid-May, to see if Buffett or his investment deputies Todd Combs and Ted Weschler were on a broader buying spree.

The 91-year-old investor, who did not respond to a request for comment on this article, has not yet offered an insight into his motives for investing in Occidental or whether the market has stormed since he wrote the Last annual letter In February he changed his mind. At the time, he said he found “little that excites us.”

Lawrence Cunningham, a professor at George Washington University, said that may have changed. While Buffett is now facing fierce competition from private equity groups for a large takeover, he still finds “substantial Buffett deals”, Cunningham added.

“Now the pitches are coming on his plate, just at his speed,” he said.

Twitter: @ericgplatt

Buffett back in the batting after 6-year deal drought Source link Buffett back in the batting after 6-year deal drought

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