Buffett buyback makes Berkshire a core holding
The plan suggests the Oracle of Omaha views his company's stock as undervalued.
Earlier this month, Warren Buffett announced an "open-ended" share-buyback program for Berkshire Hathaway (BRK-B), which allows it to repurchase its buy stock at a price not to exceed 10% above book value.
The program is a huge positive for Berkshire shareholders and effectively puts a floor on Berkshire's share price.
The program was initiated immediately and has no expiration date. Additionally, the program allows Berkshire to repurchase an unlimited number of shares, so long as the company has at least $20 billion in cash and equivalents on its balance sheet.
Berkshire Hathaway has never repurchased shares. Nor has the company ever paid a dividend to its shareholders.
In 1999, when Berkshire shares were in the toilet during the technology and dot-com boom, Buffett made an open offer to buy Berkshire shares at the current price.
Within one week, Berkshire shares had risen 24%. And one year later the stock had soared 72%, compared with an 11% decline for the S&P 500 index. As a result, Buffett never had the opportunity to buy back shares.
The Oracle of Omaha is known to be a straight shooter who puts his shareholders first. If there is a single corporate executive I trust, it's Buffett. I suspect I'm not alone in this view.
And it's fair to assume that the announcement of the repurchase program isn't designed simply to boost Berkshire's share price in the short term.
After all, Buffett has made it clear through his past actions that he doesn't really care what happens in the near term for the price of Berkshire shares or his other investors.
This announcement tells me that Buffett believes Berkshire shares are considerably undervalued.
Today, Berkshire is sitting on piles of cash. At the end of the second quarter, cash and short-term bonds totaled $77 billion. The total value of the cash equals one-third of the company's current market cap.
In addition to its huge war chest of cash, Berkshire has amazing cash flow from its operations. In the first six months of this year, cash from operations was $6.5 billion. This means that every month more than $1 billion in cash is pouring into the company's coffers!
Simply put, Berkshire is a cash-generating machine that's seeking to maximize shareholder value.
Based on our assessment, we believe Berkshire shares would need to rise 35% in order to reach their intrinsic value today.
With Berkshire shares trading at 65 cents on the dollar based on my estimates, I'm buying more Berkshire Hathaway B shares and consider this a core holding in our model portfolio.
Buffet is a cancer, he likes Obama because he can move him around like a puppet. Make back door deals in the White House then throw a little fund raiser party for Obama & everyone looks the other way. Buffet is steering this economy. This is nothing but a big Monopoly game for him. He's got all the money & all the properties. He should take all his money & go far away. He is nothing but a tumor in this country"s recovery effort.
Wow. Fredrick Michael points out an obvious math error in his post and the 'thumbs' are running two to one against him.
Wonder how badly i'll gets 'thumbed down' for pointing out that this article is an obvious shill for buffett. The writer is an embarrassment to his (alleged) trade. At this point we all know that buffett has been recently caught in numerous outrageous lies (ex. 'my secretary pays a higher tax rate than I do.' blatant lie). We know that since Obama became president, buffett was involved in several 'deals' that could at best be termed 'extreme sweetheart' and more honestly called insider or in some cases financial extortion. And the list goes on, and on, and on. And now 'alleged' financial writers are shilling for him in bogus articles like this? God help us.
MORE ON MSN MONEY
Copyright © 2013 Microsoft. All rights reserved.
Quotes are real-time for NASDAQ, NYSE and AMEX. See delay times for other exchanges.
Fundamental company data and historical chart data provided by Thomson Reuters (click for restrictions). Real-time quotes provided by BATS Exchange. Real-time index quotes and delayed quotes supplied by Interactive Data Real-Time Services. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by SIX Financial Information.
The market's cheap money addiction is laid bare. No one knows how it will end.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.