We all have a fantasy we'd like to see come true.
For some, it's being in your favorite football team's locker
room during the coach's inspiring halftime speech. For others, it
might be a backstage pass to a legendary musician's concert.
Nothing so pedestrian for us. Instead, we ask: What if you
could be inside Berkshire'sboardroom and see how its directors
vet potential companies forinvestment ?
Luckily, that's not just a pipe dream -- there's a way we can
Warren Buffett 's
Berkshire Hathaway (NYSE: BRK)
recently disclosed its holdings through a
with the Security and ExchangeCommission (SEC). Overall,
Berkshire'sequity positions increased roughly 4.7% from the
previous quarter, to $89 billion, which tells us Buffett is a
buyer in amarket that others have been disparaging.
However, Berkshire's success speaks for itself.Shares are up
73% since 2009 -- more than 18%year over year . The Oracle of
Omaha clearly has a method to his madness.
A glance at the 13F filing reveals far more information than
justticker symbols and number of shares. It tells us what
positions are being added and which sector they belong to. A
couple of interesting things stand out immediately.
has been added to a portfolio already occupied by
Phillips 66 (
, which means Berkshire is heavily invested in the U.S. energy
revival. And satellite television provider
Dish Network (
is a new holding altogether.
Perhaps the most interesting addition was the nearly 50%
increase in shares of
Chicago Bridge & Iron (
, to $9.55 million. This Netherlands-based industrial engineering
and construction company has been touted by another investment
guru turned Berkshire director, Meryl Witmer.
Witmer isgeneral partner of EagleCapital Management and a
participant in Barron's annual roundtable who was recently
appointed as a Berkshire board director. As a student of
valueinvesting , her holdings show alot of similarities to
Buffett's. Once again, Dish Network shows up as a new position,
can be found in both portfolios.
In February, Witmer spoke at the annual Barron's Roundtable
and named Chicago Bridge & Iron as one of her top three picks
for 2013. Since then, thestock has risen nearly 20%. This is the
same company we see on Buffett's 13F being bought hand over
The value investing principles used by Buffett and Witmer are
surprisingly simple. Every company they invest in shares three
Strong Customer Base
Companies on Berkshire's radar have a growing customer base. In
the case of Chicago Bridge & Iron, they're positioned to take
advantage of the growth in natural gas and shale oil. Customers
who are expanding their operationswill be even more reliant on
Chicago Bridge's proprietary technologies. In the case of Dish
Network, Buffett exited his position in newspaper publisher
in favor of an Internet and TV medium.
It may seem obvious, but it's important to invest in a company
that has long-term staying power, and not positioned for just a
short-term trade. Again, we can learn from Chicago Bridge &
Iron. As America gears up for higher oil production and natural
gas usage, Chicago Bridge's business of building industrial
infrastructure is going to be needed for the next decade at a
minimum. A high-cost barrier of entry to the industry makes for a
solid company with little competition. Knowing where a company
derives itsprofit from is essential and one of Buffett's
investment rules: "Know what you own."
Value investing is all about findingundervalued companies. The
oversight in valuation may stem from lowearnings ,heavy debt , a
lowcredit rating , or anything else investors may be wary of.
Berkshire excels at looking beyond current numbers and estimating
future growth. Witmer based her calculations for Chicago Bridge
on the possibility of anacquisition that would improve margins
and expected future growth related to its expanding product
lines. With Suncor, disappointing earnings have brought the stock
down to a level that makes it attractive due to a number of
positive catalysts, such as itsdividend payout and improving
Risks to Consider:
Valuestocks can stay below fair market prices for extended
periods of time. Adverse economic conditions may also keep
discounted stocks artificially low as investors flee to safer
Actions to Take -->
Witmer has placed a target of $100 a share for thefair value of
Chicago Bridge & Iron, giving it room for a 64%gain by the
end of theyear . Suncor is undervalued at $34 and should benefit
from doubled expected earnings in 2014.
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