Tag Archives: Todd Combs

Business, Finance, Occupation & Industry

Rumor Watch: Buffett Buying Suntech

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By Michael Lewis, The Motley Fool

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Formerly the biggest maker of solar panels in the world, with more than 10,000 employees, China-based Suntech Power Holdings has witnessed a long fall from grace. The nail in the coffin came in March, when the company failed to pay a $513 million debt obligation. Shortly following its default, the company sailed into Chinese bankruptcy protection. Fast-forward to this week and the company is trading more than 30% higher on a largely speculative rumor that Warren Buffett is looking to buy it.

Rumor mill
Suntech Power has been licking its wounds since entering bankruptcy last month. Come Monday night, the company went from one of the worst-performing Chinese stocks to market darling after a Chinese news service reported that Berkshire Hathaway subsidiary MidAmerican Energy will likely buy the solar panel manufacturer.

This was enough to send the stock up more than 30% in Tuesday’s trading, with not a single official comment to be found.

I can’t say this definitely won’t happen, because I (along with nearly everyone else) just don’t know, but I honestly can’t imagine Warren Buffett (or Todd Combs, or Tedd Weschler) liking this business at all.

The Buffett checklist
Many analysts cite Buffett’s checklist (that doesn’t exist in any static form) for buying companies when trying to determine where his cash stash will strike next. How would Suntech fair if we hadn’t heard this rumor? Poorly.

The company operates in an industry that is incredibly lumpy with sharp shifts in demand and commodity-like competition. At the moment, there is a huge oversupply of solar panels, which is why manufacturers have gotten murdered in the markets. Management wasn’t able to effectively handle the company’s finances, and poorly leveraged its former position as market leader. The company is riddled with debt, has no moat, and operates in competition with another Buffett investment. The only thing that would be appealing is that its dirt cheap.

To be fair, the industry is showing signs of improvement. Another China-based manufacturer, Trina Solar , announced that it is targeting a return to profitability in the back half of this year. American firm First Solar soared this week on similar news. But does any of this suggest that Buffett would want to own one of these businesses?

Solar farming
Buffett already owns solar farms, and these are the types of businesses that make sense as they guarantee predictable, steady cash flows over a long period of time. They aren’t affected by the swinging demand for panels, and they aren’t at risk of constant technological disruption.

Berkshire has its solar exposure, and its in the better part of the business. What would Suntech contribute to the company’s portfolio?

Stay away
Plainly said, do not buy this rumor. Even if it is anywhere close to being true, and I am proved to be not as smart as Buffett (spoiler alert), you would be speculating, and that’s not a good habit to reinforce.

For solar exposure, read my article regarding installation and financier company

Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Best Investments for the Next 5 Years

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By Daniel Sparks, The Motley Fool

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It’s nearly impossible to project anything five years out. If it were easy, we’d all know what stocks to put in our portfolio. Ironically, however, thinking long-term is a healthy habit for stock market investors. It filters out the noise and helps investors think about the underlying fundamentals that drive businesses over the long haul. In the next few paragraphs, I’ll uncover two stocks that could make some of the best investments over the next half-decade.

Apple
PC sales are declining, and smartphone and tablet sales are booming. If there’s one company that is sure to benefit from this trend over the next five years, it’s Apple. Yes, Apple may have lost market share over the last 12 months to Samsung, but it still captures the majority of worldwide smartphone profits. In fact, a recent study by Canaccord Genuity found that Apple took 72% of worldwide handset profits in the fourth quarter.

Another favorable factor for Apple: It is a cash cow. Even as the company’s margins continue to decline, it’s still adding far more money to its balance sheet than it’s paying out in dividends. In 2012 alone, the company earned $46.3 billion in free cash flow on $164.7 billion in revenue. Free cash flow, of course, is equal to cash provided by operations minus capital expenditures, so this is the cash Apple generated after it took care of its operating expenses and its long-term investments.

Though 2013 may have been tough on the stock so far, analysts, on average, expect earnings to increase at about 19% annually over the next five years.

Berkshire Hathaway
The Oracle of Omaha, Warren Buffett, seems to be on his A game — even at 82 years old. Berkshire Hathaway shares almost tripled the S&P 500‘s 11.8% return over the last 12 months, with a 30.1% gain. Even better, his lieutenants, Todd Combs and Ted Weschler, have both managed to outperform the S&P 500 by double-digit margins. In fact, they did better than Buffett himself, he admitted in the 2012 annual letter to shareholders.

Though it’s too early to tell whether Berkshire’s acquisition of H.J. Heinz will play out nicely, the outcomes of the company’s major acquisitions and purchases over the last five years have in time mostly silenced the naysayers who so eagerly criticized Buffett at the time of the purchases.

A case in point is the company’s largest acquisition ever: Burlington Northern Santa Fe, which it acquired in 2010 and turned out to be a significant success. In 2010, the company earned $2.45 billion; just two years later, the railroad contributed a whopping $3.37 billion to Berkshire’s earnings. Since Berkshire acquired BNSF, the Dow Jones U.S. Railroads Index has more than doubled the returns of the S&P 500, snapping up a return in excess of 80%.

Berkshire isn’t lacking in stock ideas, either. In 2011, Berkshire started picking up shares of IBM like nobody’s business. Now Berkshire owns 6.1% of the company. …read more

Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

3 Reasons to Buy Berkshire Hathaway

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By Steve Symington, The Motley Fool

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If we were to ask the world to name the most successful financial holding company in history, it’s a pretty safe bet Berkshire Hathaway  would take the cake.

Why? As Warren Buffett pointed out on the very first page of his 2012 letter to Berkshire shareholders, the company’s per-share book value has grown by an astounding average of 19.7% each year since 1965, good for an overall gain of 586,817% — and, might I add, absolutely destroying the S&P 500’s perfectly respectable 7,433% return over the same period, including dividends.

To put that in perspective, if you had taken $5,000 in 1965 and achieved with it the same annual rate of return as Berkshire, today it would be worth a whopping $29.3 million.

OK, so it’s easy to look back and see how much money you could have made investing with Berkshire over the past 48 years, but does that mean the Omaha-based conglomerate won’t continue to outperform the broader market indexes going forward? Hardly.

In fact, here are three reasons you can feel great about buying shares of Berkshire Hathaway today.

1. Look who’s driving this thing

Source: AP.

While Buffett’s leadership has undoubtedly left its mark on Berkshire over the years, much of the company’s success has stemmed from (in Buffett’s recent words) its “cadre of terrific operating managers,” on whom he relies to run Berkshire’s underlying businesses with very little oversight.

That’s also part of the reason it’s so darned difficult to figure out exactly who Buffett’s eventual successor will be; the possible list of candidates includes a wide range of names from former hedge-fund manager Todd Combs to insurance head Ajit Jain, MidAmerican Energy’s Gregory Abel, Geico’s Tony Nicely, and Tad Montross of General Re.

In any case, Buffett made it clear in his 2011 shareholder letter that Berkshire has already chosen not only his successor, but also “two superb back-up candidates as well.”

In the same paragraph, Buffett then reminded us that more than 98% of his net worth is in Berkshire stock. He elaborated:

Being so heavily concentrated in one stock defies conventional wisdom. But I’m fine with this arrangement, knowing both the quality and diversity of the businesses we own and the caliber of the people who manage them. With these assets, my successor will enjoy a running start.

Which brings me to the next reason you might consider buying shares of Berkshire.

2. Taking over the world, one business at a time
Of course, great leadership certainly can’t hurt. Buffett himself often says he likes to find businesses capable of performing well even in spite of the occasional bad manager, even half-joking once that Coca-Cola could be run by a ham sandwich.

Luckily for Berkshire shareholders, Buffett hasn’t had to test that principle, thanks largely to its massive, stable insurance segment, which includes industry behemoths Geico and General Re. As I noted recently, however, Berkshire also made nearly $9.7 billion last year from its stakes in chemical maker Lubrizol, industrial …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

My Top 2 Stocks: Berkshire Hathaway and Waste Management

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By Robert Eberhard, The Motley Fool

WFC Chart

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I haven’t been in the investing “game” for that long, but my two largest holdings are among the first shares that I purchased when I started getting serious about investing. One is a behemoth with revenue streams among multiple industries, while the other leads the way in its very important industry. It is easy to see why they’re leading the way in my modest portfolio.

Barring any major surprises, Berkshire Hathaway and Waste Management should maintain the top two spots in my portfolio for the near future and are on my short list for receiving more of my investing funds in the next couple of months. Though the reasons I chose the companies were different, I have been pleased with my decision thus far and hope for continued great performance from both companies.

Why Berkshire Hathaway?
When I became serious about investing early last year, I was looking for a strong foundation to start out my small portfolio on the right foot. I was looking for a company that had a long track record of market-beating performance, but also one that I thought would continue to do so for the foreseeable future. As a fan of value investing, particularly Benjamin Graham, I figured a great place to start would be with the company run by Warren Buffett, perhaps Graham’s most famous student and one of the world’s best investors.

Berkshire Hathaway is a unique company, and investors in it get rewarded in a multitude of ways. One way is to reap the benefits of its multitude of wholly owned subsidiaries across a variety of industries. Berkshire is perhaps best known for its insurance operations, led by GEICO, but the non-insurance companies it owns also add a lot of money to the Berkshire coffers. Last year, Berkshire’s five most profitable non-insurance companies — including the BNSF railroad and Mid-American Energy — earned more than $10 billion for Berkshire and its shareholders last year. Quite an impressive number.

Investing in Berkshire Hathaway also allows you to share in the performance of the company’s stock portfolio, which is full of stock picks from not only Warren Buffett and Charlie Munger, but also Todd Combs and Ted Weschler, two men Buffett picked to manage an ever-growing portion of Berkshire’s investment funds. Berkshire’s four largest holdings all saw gains during the past year, helping to boost the performance of Berkshire as a whole:

WFC data by YCharts.

Berkshire Hathaway is a company that I’m comfortable owning for a very long time and one that I don’t really worry about. Despite its recent run to new heights, I’ll be adding more to my holding over the next few months to truly benefit from one of the greatest companies out there.

Why Waste Management?
I added Waste Management to my portfolio when I was looking for a strong and sustainable …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Would Warren Buffett Ever Buy Apple?

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By Eric Bleeker, CFA, The Motley Fool

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In the following video, Fool senior technology analyst Eric Bleeker looks at a question that could seem ludicrous given Berkshire Hathaway‘s traditional aversion to technology: Would Warren Buffett ever buy Apple?

In spite of Buffett’s long stance that technology is either too complicated or lacks the right long-term competitive advantages for his investing style, recent evidence points to his having more interest in the space than he lets on. 

For example, Berkshire took a position in Intel  back in 2011. The deal was small enough that it was almost assuredly from potential Buffett successor Todd Combs. Also, in a surprising move that eschewed its traditional long-term focus, Berkshire sold the position within a year’s time for healthy gains. Yet the fact that Berkshire would invest in something that competes on the most cutting edge of technology — the non-stop march of semiconductor technologies — was intriguing. 

Much larger than Intel was Buffett’s buy of IBM . It’s a company that’s as blue-chip as they come in technology and has a tremendous model that increasingly layers software and services on top its hardware portfolio, yet there’s no denying it competes in some very fast-moving and advanced markets. IBM isn’t a small bet, either. It’s Buffett’s third largest public holding. The $14 billion Berkshire owns in IBM is only slightly smaller than its fabled Coca-Cola holding. 

Finally we come to Buffett and right-hand man Charlie Munger‘s description of Google  back in March 2009:

“Google has a huge new moat. In fact I’ve probably never seen such a wide moat,” said Munger. “I don’t know how to take [the moat] away from them,” said Buffett.” “Their moat is filled with sharks!” Munger added.

Google does have a fabulous competitive position, yet even with Buffett’s willingness to invest in great companies at fair prices, its current P/E of 26 is probably a bit too steep to see the Oracle sniffing around Google’s shares. 

So we have ample evidence that Buffett could very well be overly modest and cagey in his deference to technology investing. With Apple now within a modest one-day drop away from being in the 5% cheapest companies in the S&P 500, could Apple possibly be a stock on Buffett’s radar?

As Eric notes, it has some qualities Buffett likes. Its $137 billion in cash is beyond a fortress-like balance sheet, the company has a tremendous global brand, and its cash flow continues to outpace earnings growth. Buffett’s statements on CNBC last week also showed he doesn’t find the company terribly expensive, suggesting Tim Cook use the company’s cash to rebuy shares. 

In the end, the biggest strike against Apple would be the perception that it’s a hardware play prone to being dragged down by competitive forces in the coming years. Were Buffett to take any interest in even putting the sights of his elephant gun on Apple’s shares, it’d probably have to come with his believing that mobile operating systems provide a larger user lock-in than many of his value peers would believe. 

As Eric notes, seeing Berkshire …read more
Source: FULL ARTICLE at DailyFinance

News, Politics, Government

Buffett and New Berkshire Manager Both Love Credit Cards but Go Different Directions

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By GuruFocus, Contributor Warren Buffett and his new Berkshire Hathaway (BRK.A)(BRK.B) investment manager Todd Combs have in common a proclivity for credit card stocks, though their purchases were made under different circumstances and of different companies. Combs’ choices, Visa (V) and MasterCard (MA), also had dramatic run ups in market value that contributed to the greater than 26% return Buffett lauded Berkshire’s two new managers for in his 2012 annual letter. (See more about how they did it here.) …read more
Source: FULL ARTICLE at Forbes Latest