hurricanemaxi
Joined: 17 Sep 2011
Posts: 83
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 Posted: Tue Sep 27, 2011 4:22 am Post subject: Buffett Buyback Shows S&P 500 May Be Bargain |
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Warren Buffett’s determination that Berkshire Hathaway Inc. (BRK/A) shares are cheap enough to buy back may mean the Standard & Poor’s 500 Index is also a bargain.
The company is authorized to repurchase stock for the first time in four decades as long as its price is less than 1.1 times book value, or assets minus liabilities, according to a statement yesterday. The level is 29 percent below Berkshire’s average of 1.55 since 2000, almost the same discount investors are getting in the S&P 500, according to data compiled by Bloomberg. Shares of Omaha, Nebraska-based Berkshire fell to $100,000 for the first time in almost two years on Sept. 22.
Declines that have erased about $2.8 trillion from the value of American equities in the last two months are luring Buffett, who said his company spent more to buy stocks on Aug. 8 than any other time this year. The S&P 500 tumbled 6.7 percent that day and has lost 15 percent from its 2011 high on April 29, driven down by concerns Europe’s debt crisis will spread and shrink the global economy.
“If he thought the possibilities of a recession were on the horizon, then he’d wait to do this,” James Dunigan, who helps oversee $109 billion as chief investment officer in Philadelphia for PNC Wealth Management, said in a telephone interview. “You can make a number of arguments that on some traditional measures, the market is undervalued.”
Buffett didn’t respond to an interview request e-mailed to his assistant, Carrie Kizer.
Market Valuations
Repurchasing Berkshire stock is a bet that market valuations are too low partly because so many of its investments are public, Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which manages $54 billion, said in a telephone interview. Berkshire owns stakes in 27 companies whose trading is overseen by the U.S. Securities and Exchange Commission, an August filing showed.
“This announcement is a bit out of character and for that reason is seen as very constructive both in terms what he sees as an opportunity to buy a great asset, namely Berkshire stock, trading at a discount to historical book value as well as the portfolio of companies within Berkshire that he thinks is undervalued,” Luschini said.
The plan may signal that Buffett, Berkshire’s chairman and chief executive officer, is finding fewer opportunities in the stock market, said Michael Shaoul, who helps oversee more than $1 billion as chairman of Marketfield Asset Management in New York. While the S&P 500 is priced close to the same discount to its historical book value as Berkshire, fewer than 20 percent of its companies are trading below the 1.1 ratio Buffett requires for his own repurchases, data compiled by Bloomberg show.
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