T2 Partners hedge fund manager Whitney Tilson is bullish on Berkshire Hathaway, betting it will surge 44 percent.
“The earnings of Berkshire’s operating businesses have grown at a very high rate,” Tilson noted during a recent presentation.
“Berkshire is becoming less of an investment company and more of an operating business.”
Warren Buffett’s comments in his investment letters, Tilson says, lead to an implied multiplier of approximately 12.
And even using a multiple of 8, Berkshire is selling at approximately 20 percent to 25 percent below its current intrinsic value.
Add to that a probable 5 percent growth of intrinsic value and cash build over the next 12 months, and you get $143,000, about 38 percent over today’s price, Tilson says.
Tilson acknowledges that there are risks to this rosy scenario.
If the current recession turns into a depression, Berkshire’s stock portfolio declines, the company’s recent investments in GE and Goldman prove to be ill advised or losses in short-term derivatives are larger than expected, the picture will change.
Berkshire Hathaway shares recently continued to rise, defying a drop in much of the market, The Wall Street Journal reports.
Reasons for the surge included Berkshire Hathaway's inclusion in the S&P 500 and S&P 100 indexes, which leads to buying by index funds, and the stock's 50-for-1 split earlier in January, which suddenly made an expensive and relatively illiquid stock far more available and within the price range of average investors.
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