Six months may be a blip on the radar screen for someone with a
50-plus-year career, or with their investing eye toward a hazy
point in the far-off future. But information about
's recent buys for Berkshire Hathaway (
) can be useful for Buffett-minded people researching his stocks or
plotting an attractive point to buy them. The chart below shows
that Buffett recently has been allocating more of his investing
capital toward equity securities than he has since 1998, at 63%,
while cash and cash equivalents has dwindled to a multi-year low of
19% and, and fixed maturity securities likewise at a multi-year
low, at 18%.
Buffett's investing performance also over the past three years
stayed about in line with the market, returning a cumulative 35.2%,
compared to the S&P 500's return of 35.5%. He performed better
over the recent five-year period, returning 46.4% cumulatively
compared to the market's 8%. Over the long term, of course, he left
the market in the financial dust.
Buffett (and his portfolio managers, Todd Combs and Ted Weschler),
have been buying new stocks mainly in pairs over the past year and
a half. In the first quarter of 2013, their new stocks were Chicago
Bridge & Iron Company and Starz (
) (a spin-off), and in the second, they bought Suncor Energy Inc. (
) and Dish Network Corp. (
Several GuruFocus tools can help determine whether these stocks are
still good buys since Buffett or his managers bought them.
Chicago Bridge & Iron Company (
Berkshire Hathaway bought 6,508,600 shares of Chicago Bridge &
Iron Company in the first quarter of this year, when the price
averaged $53. In the second quarter, with an average price of $58,
it added 3,042,155 shares. The holding equals 6.07% of the
company's shares outstanding.
With a $7.97 billion market cap, Chicago Bridge is an energy
infrastructure company dealing in design, engineering, construction
and other services, with a major focus on the government. It has
three divisions: Steel Plate Structures, Project Engineering and
Construction, and Lummus Technology.
So far this year, investors have traded the company's shares up
more than 60%, to $74.34 on Thursday.
Buffett bought Chicago Bridge near its five-year high prices. The
Peter Lynch chart indicates that the company was about fairly
valued at the start of the year. The stock's climb over the year
has placed it in overvalued territory, however according to this
The DCF calculator also finds the company quite overvalued,
assigning it a fair value of $41.01, assuming a growth rate of 10%
annually over the past 10 years. CBI grew EBITDA per share at a
rate of 20.5% annually over the past 10 years, boosting the
likelihood of the company achieving this future growth rate. EBITDA
grew more sharply over the recent five years, at a rate of 36.1%.
The reverse DCF calculator projects that a 19.05% growth rate would
be needed to justify the stock's current 10-year-high stock price.
The current price gives investors a negative 81% margin of safety
at this point, according to the DCF calculator.
Revenue declines have been cause for concern, as the company's
inflow has declined at a rate of 2.1% annually over the past five
Another guru investor who bought CBI,
, noted in his fourth quarter 2012 letter a key growth driver for
Although ADT was the top contributor from the industrial sector
during the quarter, Chicago Bridge and Iron (CBI
) was another strong performer in the sector. The global
engineering and construction firm rose sharply in December after
shareholders of Shaw Group approved Chicago Bridge and Iron's $3
billion acquisition which was proposed in July. The combined
entities will become one of the largest energy construction and
engineering contracting firms in the world.
The financial effects of new acquisitions have begun to ripple
through the company, as second quarter revenue rose 119% from the
second quarter of 2012 to $1.3 billion.
A somewhat negative sign about the company's valuation is that its
P/S ratio is close to a two-year high, at 0.94, but this is around
the same range where Buffett purchased the stock:
Suncor Energy Inc. (
Berkshire Hathaway brought 17,769,457 shares of Suncor in the third
quarter, when the price averaged $30 per share. Since then, the
price has risen 18% to $35.49 per share.
Suncor is a pioneer of commercial development of the Canadian oil
sands, that has grown into a global integrated energy company
aiming for 1 million barrels of oil equivalent production per day.
Suncor stock in the last year moved very little, rising less than
8%, though it fell to a 52-week low of $26.83 in the second quarter
when Berkshire purchased it. In recent weeks the stock pushed to a
two-year high of $36.06 per share, which could be as much as 34%
higher than Berkshire's price, if it was purchased at a 52-week
That quarter, the company's P/E ratio was 17.19, P/S ratio was
1.21. The valuation ratios also rose modestly to 20.5 and 1.4,
respectively, since then.
The Peter Lynch chart also indicates that the stock is about as
overvalued as it found it in the second quarter:
Assuming a growth rate of 5.4% in the next 10 years, the DCF
calculator assigns Suncor a fair value of $17.12. This implies a
margin of safety of negative 110%.
A reverse DCF calculation finds that the company would need to
achieve a 16.76% earnings growth rate over 10 years to justify a
current stock price of $35.87. The company's previous 10-year
growth rate is 5.4%, a sign that this projection is unlikely.
Dish Network Corp. (
Berkshire purchased 547,312 shares of Dish Network in the second
quarter, when the price averaged $39 per share. Since then the
stock increased about 26% to a 10-year high around $48.88.
Dish Network is a high-definition satellite TV company with about
14 million satellite TV customers.
In the second quarter, Dish Network had a P/E ratio of 75.93 and
P/S ratio of 1.35. Its current P/E and PS ratio have increased to
87.4 and 1.6, respectively. These metrics are both near their
respective five-year highs.
The Peter Lynch Chart portrays the stock becoming more overvalued
since Berkshire purchased it.
The DCF calculator gives Dish Network a fair value of $21.52 (a
less accurate figure due to the low predictability of Dish
Network), assuming a 10-year growth rate of 14.6%. To justify the
current price, the Reverse DCF calculator indicates that the
company must achieve an earnings per share growth rate of 27.02%
over the next 10 years. As the previous 10 years growth rate was
14.6%, this scenario appears unlikely.
See more Berkshire Hathaway stocks at its portfolio here. Also
check out the Undervalued Stocks, Top Growth Companies, and High
Yield stocks of Warren Buffett.
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