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Buffett’s Berkshire becomes more cautious on stocks and buyouts

(Bloomberg) – Warren Buffett’s capital allocation machine withdrew on several fronts earlier this year as the billionaire took a more cautious stance on equities.

Net sales of shares in Berkshire Hathaway Inc. the first quarter was the second highest in nearly five years, and the conglomerate, where the billionaire is chief executive, slowed its pace of buyouts, according to a regulatory filing on Saturday. That helped Berkshire’s boost rise 5.2 percent three months earlier to almost a record $ 1

45.4 billion at the end of March.

Buffett has struggled in recent years to cope with Berkshire’s ever-gushing cash flow. This led him to buy back significant amounts of Berkshire shares by pulling a leverage that he had previously avoided in favor of large acquisitions or purchases of shares. It set a record in the third quarter of last year, raising $ 9 billion in shares, but slowed that pace in the first quarter with a buyback of $ 6.6 billion.

“If Buffett doesn’t think there are acquisitions at fair prices and it’s obvious that as a net seller of stocks, he doesn’t see many opportunities in the open market to buy publicly traded stocks, if we look at money rising to $ 175 billion next year or so? Because that seems to be where we’re going, “said Jim Shanahan, an analyst at Edward D. Jones & Co., in an interview. “If redemptions are delayed, then what levers will be left to withdraw?”

Berkshire bought more shares in January and February than the company in March, when shares rose nearly 5.8 percent, according to the data. Buffett has long been disciplined about repurchase prices, noting in 2018, when the company loosened its repurchase policy, that he and his longtime business partner and Berkshire vice president, Charlie Munger, could repurchase shares. when they are below the intrinsic value of Berkshire.

In recent years, Berkshire has failed to achieve price and significant acquisitions, one of Buffett’s most preferred ways to apply cash. Last year, he struck a deal for some natural gas assets from Dominion Energy Inc. and invested in some Japanese trading companies. But it has long been price sensitive, unwilling to overpay for an asset, according to Shanahan, and the competitive environment for deals has intensified with a boom in private equity and special purpose vehicles.

Still, Berkshire’s business achieved a strong quarter, with profits reaching the second-highest level in 2010. Operating profit of about $ 7.02 billion was surpassed only in the third quarter of 2019. Profits were partially fueled by insurers of the company and its group of manufacturers serving the business and retailers.

Net earnings, which reflect Berkshire’s stock portfolio of $ 282 billion, rose to a profit of $ 11.7 billion in the quarter, compared with a loss of $ 49.7 billion a year earlier when the pandemic began. rises in the US and shares fell.

Despite the buyouts, which did not reach Buffett’s three-month record, the billionaire investor has been looking for his own shares in Berkshire since late March, with at least a $ 1.25 billion buyback until April 22, according to the filing. And given that Berkshire does not have a specific amount allocated for repurchase plans, significant repurchases are still a nice part of the capital injection, according to CFRA Research analyst Kathy Seifert.

“The fact that Berkshire has released more than $ 6 billion for repurchases this quarter will be welcomed by investors,” Seifert said.

What Bloomberg Intelligence says

“The $ 6.6 billion buyout in the first quarter was expected to fall by 4Q, but still significant. Almost all segments showed accelerated revenues and profits. “

– Matei Palazola, senior analyst in the industry

Shares of Berkshire Class A rose almost 11% in the first quarter, outpacing 5.8% earnings in the S&P 500 at the same time.

Buffett, 90, will join Munger, 97, for Berkshire’s annual meeting on Saturday. The couple will send questions from investors for hours during the virtual event.

Follow the TopLive blog when the meeting starts here.

(Updates with analyst comments in paragraphs 4 and 9, redemption details in paragraph 5.)

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