Facebook vs. Berkshire: The choice is clear

The social network's coming IPO offers what Buffett's company doesn't -- huge growth potential and value.

By Jim Cramer May 8, 2012 11:29AM

Facebook and Berkshire Hathaway (BRK.A). Could there be two more opposite companies? One is run by a fast-moving, young, hard-charging entrepreneur who is filled with ideas that only true visionaries can think of. The other is run by older management that has taken a hands-off view of its assets and talks a bigger game than it has.

 

I didn't want to write this piece. I think the world of Warren Buffett, and he has made money for hundreds of thousands of people, including many who are now millionaires. It's been a fabulous run. But right now the company has neither growth nor dividend and is, alas, worth more dead than alive. That's right, the breakup value of Berkshire Hathaway well exceeds its current value. Without a breakup, which is clearly not in the cards right now, there's not much hope for appreciation. The stock has underperformed the market drastically, and judging by the talks this weekend, it will continue to do so, because management is content with its current stance.

 

It is also painful to say that Facebook should be the stock everyone wants, because it has no earnings and no track record as a public company. But its growth rate is staggering, and management hasn't even scratched the surface of ways to make money. Facebook has become the de facto you, with all of your information, your pass code, your history.

 

It is the first site where you may not have to click on the ads to reward advertisers. There's going to be some demand by some advertisers for that, particularly on mobile, but the question will come down to which is more able to reach the coveted younger demographic: magazines, newspapers, billboards, television, or the de facto Internet identification of a billion people, which is where Facebook is headed.

 

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Of course, Facebook will be inherently overvalued from the get-go because of its lack of earnings, but I want you in on the IPO anyway, because it will make you money.

 

Berkshire Hathaway will be inherently undervalued until Buffett steps down as the CEO. Without earnings growth, without a catalyst like a breakup, without a dramatic housing recovery, it can't outperform.

 

Of course, there are a number of ways Berkshire could change things. It could pay a huge dividend, which has helped stocks dramatically. Look at Verizon (VZ) or AT&T (T). It could break itself up. Look at the success of the old Philip Morris (PM) or Fortune Brands (FBHS).

 

But Buffett just hates both alternatives, and his set-in-the-ways-of-Warren attitude will preclude any sort of secular growth. He boasts of being able to do big acquisitions when the market has wanted big spinoffs and breakups for ages, and that shows that has been out of step for more than a decade. I put it that way because Buffett would tell you that such actions are flavors of the month. But they've been flavors of the decade.

 

The market loves growth. That's Facebook. It hates stagnation. That's Berkshire Hathaway. If decorum, honesty and folksiness added value, the contest would be easy: Berkshire, hands down. Unfortunately, those qualities have nothing to do with stock appreciation. You grow, you bring out value, you pay a dividend. You have to give us one of those. Berkshire gives us none.

 


Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust, and has no positions in stocks mentioned.

25Comments
May 8, 2012 12:33PM
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Well this is it, Jimbo. You have erased the last shred of faith I had in you. You recommend buying a fad website, the electronic version of the hula hoop, over a large and fast growing conglomerate of profitable companies. And they are not just profitable this year. From what I can see, they will be profitable long after you and I go to meet our maker.

Zuckerberg is being sued by any number of people and organizations on privacy grounds. I recall several times when users had to jump on and change their settings because of yet another brainfart from the kids who run this show. In 2011 they settled with the FCC on a privacy suit and agreed to independent audits for the next 20 years!

And you trash the wisest investor of all time.

Goodbye Jim. Now I can save time by not paying attention to you. I'll be reading interviews of Warren Buffet so I can become a better investor.

I'm not going to cross post this on Facebook. And of course I'm long BRK!

May 8, 2012 11:52AM
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as long as this guy keeps repeating  his garbage i will keep repeating his record

gold at 1900 now 1600.........every one should have some

nyx at 90 now 30...... stock of the year for 2010

alcoa at 18 now 9.....best dow stock for 2011

sears at 150 now at 50.....never bet against eddie lampert

chesapeake at 34 now at 17......aubrey mcclendon is a master at what he does

 

YOU CAN RESEARCH WHAT I SAY ...THESE ARE THE FACTS OF THIS SCAMMING HACK....

HE IS PURE POISON TO THE NOVICE INVESTOR

May 8, 2012 3:57PM
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First you state:

 

>>  I didn't want to write this piece

 

So why did you.

Now with the obvious out of the way, good grief, you've given me every reason to buy Berkshire Hathaway, and to AVOID Facebook.

 

>>> Berkshire Hathaway will be inherently undervalued until Buffett steps down as the CEO

 

How old is Warren Buffet.  Doesn't this statement make it a 'BUY' ?

 

>>> That's right, the breakup value of Berkshire Hathaway well exceeds its current value

 

You mean the assets or book value of BRK are more than the share price.  Sounds like a reasonable buy.  That is the only way I interpret this statement.

 

>>> The stock has underperformed the market drastically

 

Since when?  1957?  1999?  2008?   Timeframe matters!

 

Facebook, IMHO, is the scourge of society in general.  Just think of all the lost productivity of this nation thanks to people glued to their Facebook accounts.  This is one stock I can't support on principle alone!

May 8, 2012 1:43PM
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Mr Cramer makes money selling his advice, not by following it.
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but the question will come down to which is more able to reach the coveted younger demographic: magazines, newspapers, billboards, television, or the de facto Internet identification of a billion people, which is where Facebook is headed.

ROFL who wants the young unemployed demographic who owe $100,000 for college and living off mom and dad in their basement??

 

Good luck making money off them.

May 8, 2012 11:55AM
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buffet has more walking around money than this hack ever saw

 

cramer advising buffet  is like a 250 pound women telling people about fitness

May 8, 2012 12:36PM
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Cramer consistently sounds like the race track tout that whispers to you, "Sunny Daze in the 8th to win."
May 8, 2012 2:28PM
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 Don't buy Facebook on day 1.

 

What makes you think a U.S. retail investor can buy an IPO on day 1?

May 8, 2012 2:49PM
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I agree with wake up now, and displayed name. I see FB as a scam. I never bought anything from there, and don't know anyone who has. And all these users-how many of them are people with dupe accounts? How many of them are fake accounts? Type in the name of any famous person and see 5, 10, 15, 20 accounts for that person. Does anyone believe famous actors and actresses are sitting around on FB all day and night? Would you be if you were making millions of dollars per year and wanted to protect whatever shred of privacy you have left? These are basically teenagers and foreigners running these accounts.
As a frequent FB user I can also tell you this-many of the people who use FB heavily are disabled in some way and/or unemployed. You don't see many wealthy people on FB, again, they may want to protect their privacy. Many of the people I see using FB a lot are suffering from some type of physical ailments, unemployed, or drink heavily. I don't see a lot of money in that demographic. 
And don;t even get me started on how many people from India, Italy and Indonesia are on FB. How much money does the average person in those countries have?
May 8, 2012 3:30PM
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  Here are few facts about Facebook that the mainstream media isn't too keen to report on:

 

 The great "genius" Mark Zuckerberg was arrested in February for drug possession... oh and his real name isn't Mark Zuckerberg it's Jacob Michael Greenberg... oh  and did the media bother to tell you he's actually the great grandson of John D Rockerfeller Sr or that Facebook is a CIA backed biometrics database or that that the CIA has access to everything you put on Facebook?  I guess the mainstream media decided you just didn't need to know that.  You just need to fall down on your knees and praise "Mark Zuckerberg" and Facebook like Bobo does.

May 8, 2012 5:10PM
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About 24% of the young people are leaving face book because it has become "boring".
May 8, 2012 11:42AM
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Good article, I agree. There is always a risk in investing in such a young company, run by a guy who in many ways still seems like a high-school kid. His attitude towards privacy is shocking and the company's revenue model seems to be based on information that's not always freely given.

Traditional companies like BH might be last century's news, but at least you won and lost based on a game you knew. Facebook won't play by the rules, and may pay a dear price ultimately for that.

May 8, 2012 9:28PM
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Dumb article by Cramer.  No ****, if I could get in FB at the IPO price, I would put every nickel I have into it and promptly sell the morning it opens to any willing idiot.  But after that, I would be much better off swapping into a company like Berkshire.  Yes it is probably too large for its own good now.  Yes it would be better with a dividend.  Yes it's probably worth more broken up.  But a flat return is far better than an 80% loss, which could easily happen to FB.  Cramer has been in the game too long that he forgets the principles of INVESTING (different from trading).  FB is not worth anywhere close to $100 billion.  NOWHERE FRICKEN CLOSE.  And when it opens, it could be worth $150 billion, maybe more, with all the fanatics touting it.  Have we learned absolutely nothing, only 10 years after the tech bubble?  Cramer should be ashamed for touting this overpriced sham to gullible retail investors.  Do yourself a huge financial favor - unless you have more money than godzilla over at MS and can get a piece at the offer (talk about the rich getting richer), STAY AWAY from this ticking time bomb.

May 8, 2012 4:35PM
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Correct me if I'm wrong, but there has never been a "major" tech IPO (e.g.,' Microsoft, Google, et al.) that was surrounded with less robustness on the "buy" side, or more energy on the "forget about it" side.

 

Given that "Facebook" is little more than a gossip-chat-picture sharing Internet address, I think it's very possible this will prove to be a dud IPO for the history books.

May 8, 2012 12:39PM
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JUST ANOTHER AT THE CRAMER CHOP SHOP
May 8, 2012 3:17PM
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I'm going "all-in" on cramer's advice on this one... no doubt.   He nailed it a few years back when he alerted the world to one of the greats....  Lenny Dykstra.

 

     Yep    ... I'm All In. 

May 8, 2012 12:26PM
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so if i have no position in a stock mentioned and my brother has a million shares i have no conflict? cmon....we are stupid but not all of us are broke with our hats on crooked

 

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I say we should dump facebook and just let Buzz Bernanke prints monies to infinity and beyond why even pretend to have a company. Just print the money and do nothing and generate trillions of dollars a day.

 

Bernanke could print up $100,000,000 for each American and dump the money in their banks accounts and using NSA computers this could be done in about 2 seconds.

 

Why even pretend that facebook is going to make tons of money when it is just going to shovel money out the door with no means of generating income.

 

Just let Bernanke put $100,000,000 in every American's pot just like Rosevett promises a chicken in every pot??

 

These googles and apples and facebook companies are going to fall to earth like tulips in historical Holland.

May 8, 2012 1:29PM
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unvalue guy........we are pointing out a scam not which tout to follow.......get with the facts

 

May 8, 2012 12:19PM
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and who wants a pump and dump hack running around free when he should be in prison
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