If you were to boil down Warren Buffett’s latest shareholder letter, he was acting on his famous quote, to be fearful when others are greedy and greedy when others are fearful. In italics, he said there was “no” possibility of eye-popping performance as he basically swore off any big acquisition, due to size constraints as well competition for deals from private-equity and venture capital.
Christopher Bloomstran, the co-owner of $477 million investment firm Semper Augustus Investments, is a long-time Berkshire Hathaway
BRK.B,
+0.50%
BRK.A,
+0.55%
investor with nearly a third of its assets in the Omaha, Neb. conglomerate.
That indirectly makes Bloomstran a big investor in Apple
AAPL,
-1.00%,
seeing as how the tech giant is the top holding in Berkshire Hathaway’s portfolio.
“We’d prefer a more flexible capital policy, buying shares when they are cheap and sending special dividends to shareholders when they are not,” says Bloomstran in his own 149-page missive to investors, referring to Apple’s “mammoth” stock repurchases even as revenue growth has slowed to 1% per year over the last two years.
“If sales growth fails to recover to at least 7% annually, the multiple is certain to shrivel from today’s 30.0x. To my mind, Apple is worth far less than its $3 trillion valuation on $400 billion of slow-growing sales producing profits of just over $100 billion.”
Granted, Berkshire Hathaway’s cost basis per Apple share in the fourth quarter was an estimated $35.39 – far below the current price of $182.52.
The bulk of Bloomstran’s letter is devoted to Berkshire Hathaway.
Bloomstran says Berkshire Hathaway is undervalued. He does say the rest of Berkshire Hathaway’s investment portfolio outside of Apple is undervalued, but that’s not his reason for owning the stock.
“Berkshire’s common stock portfolio is far too large to run circles against the S&P 500 anymore,” he says. “The advantage to the stock portfolio is because it is a stock portfolio. The degree of overcapitalization in Berkshire’s insurance operation allows for ownership of a much larger allocation to common equities (and even to an entire railroad every now and then).”
Since Berkshire buys companies with durable and growing earning power and doesn’t overpay, its earnings yield is often higher than the yields on bonds that other insurers invest in. “It grows and spits out surplus capital to Omaha for investment throughout the empire.”
Bloomstran estimates Berkshire will likely earn between 10% and 12% of its equity over a decade and repurchase some “meaningful” number of shares at a price between 120% and 150% of its book value. “If the stock trades at a mid-teens multiple (it’s 14.2x today), the investor gets a low-double-digit return,” he says.
The markets
U.S. stock futures
ES00,
-0.00%
NQ00,
+0.09%
were flat after a 1.7% surge in the S&P 500
SPX
last week, which registered its 13th record close of the year.
Key asset performance
Last
5d
1m
YTD
1y
S&P 500
5,088.80
1.66%
3.26%
6.69%
27.79%
Nasdaq Composite
15,996.82
1.40%
3.50%
6.56%
40.39%
10 year Treasury
4.246
-3.80
16.74
36.52
32.81
Gold
2,042.10
0.82%
0.46%
-1.43%
11.94%
Oil
76.15
-2.67%
-1.08%
6.76%
0.54%
Data: MarketWatch. Treasury yields change expressed in basis points
The buzz
New-home sales data is due for release, the first indicator of the week which will see the PCE price index on Thursday and the ISM manufacturing index on Friday. There’s a $63 billion auction of two-year notes and a $64 billion auction of 5-year notes.
Alcoa
AA,
-4.43%
struck a deal to buy venture partner Alumina for $2.2 billion.
Intuitive Machines’ stock
LUNR,
+15.82%
slumped as the Odysseus moon lander fell on its side.
Domino’s Pizza
DPZ,
+1.32%
shares rose as the pizza chain reported stronger-than-expected earnings. After the close, Zoom Video Communications
ZM,
+2.06%
reports results.
Best of the web
Nvidia is not only Silicon Valley’s hot stock, but also its hot employer.
The Koch brothers-led donor network has turned off the taps to the Nikki Haley presidential campaign.
A massive leak from a Shanghai hacking firm shows China’s national police agency is spying worldwide.
Top tickers
There were the most active stock-market tickers as of 6 a.m. Eastern.
Ticker
Security name
Nvidia
Tesla
Intuitive Machines
Nio
Apple
Advanced Micro Devices
AMC Entertainment
Amazon.com
Palantir Technologies
Taiwan Semiconductor
The chart
Torsten Slok, the chief economist of private-equity giant Apollo Global Management, says there could be a bumpy road ahead. As the Fed continues its quantitative tightening program, the level of reserve repos may reach zero in May or June. “The worry is that once there are no longer abundant reserves in the banking sector, then reserves will be scarce, and the consequences could be less support for T-bills, duration, and credit markets, or stresses in money markets similar to what we saw in September 2019,” says Slok.
Random reads
The $100 bill is America’s most common currency – good luck trying to use it.
Funding was not secured for a bakery that got an order for $6,000 worth of pies that was cancelled by a Tesla employee.
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