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Buffett's High Quarter Brings New Profits and Money

(Bloomberg) – Warren Buffett's third quarter in many respects marked a new peak.

Berkshire Hathaway Inc.'s Operating Profit First has reached its best levels. This was offset by record revenue from the BNSF railway, its biggest acquisition to date. The profits from its stock bets pushed the conglomerate's net income in 2019 to a staggering $ 52 billion, making Berkshire the world's most profitable publicly traded company.

And now the legendary investor has more money to play than ever: $ 128 billion. This is the record in which Berkshire shares are disappearing as investors wrestle with the question of all superlatives: What's next?

"Berkshire has some disruption to wealth," said Kathy Seifert, an analyst at CFRA Research in an interview. , "That money can burn a hole in your pocket and it's wise to be careful, but at one point it almost becomes a burden to the extent that it will reduce your overall return."

Buffett, 89, has built the most a valuable public company off the West Coast with major businesses in the energy and insurance industries to car dealerships and jewelry. Now he faces a rare topic where he can write a check for $ 10 billion and face the question of whether he is aggressive enough.

Buffett's cash pile rose again in the quarter and its liquidity carries potentially lucrative deals such as the crisis era of betting on Goldman Sachs Group Inc. and General Electric Co., as well as a $ 10 billion third-quarter investment in Occidental Petroleum Corp., which allowed a deal with Anadarko Petroleum Corp.

But apart from the Occident bet, Buffett was a net seller of equities during the quarter, and turmoil-induced deals are harder to come by with the S&P 500 index hitting fresh peaks. And Berkshire has not kept pace this year. Berkshire Class A shares rose 5.7% this year through Friday, with the exception of a 22% gain in the S&P 500.

The period also gives examples of the limits Buffett faced in trying to use money in cash to continue the tremendous growth that made him famous. He is further pressed into financial stocks, but in his two largest holdings, he is right about regulatory restrictions on bank ownership. With Bank of America Corp. he applied for permission to potentially increase his participation; at Wells Fargo & Co. it sold shares during the quarter.

Buffett acknowledged that the immediate prospects of buying up businesses are not good against the background of "heaven." But he said he was still hungry for the size of an elephant.

Buffett takes advantage of being selective about the deals he chooses, even if it means spending time in anticipation with $ 128 billion sitting in cash and government accounts, the shareholder said. Thomas Russo.

"The accidental thing came to Berkshire, no one else, for a reason — they wanted its seal," says in an interview with Russo, who invests in Berkshire through his firm Gardner Russo & Gardner. "This seal is valuable only if people think that the investments it makes are well-wiped out and not rushed through it."

While Buffett has stood on the big acquisition front in recent years, he has managed to put some money into the stock market. In recent years, Berkshire has clicked on shares of JPMorgan Chase & Co. and Apple Inc. One deputy investing in Buffett even bought shares on Amazon.com Inc. this year. But there are limited supplies that even have the potential to move the needle.

There are approximately 55 US companies that Buffett could invest $ 10 billion with, and remain below the preferred 10% ownership threshold. He already owns a stake in 13 of them and has previously bet at least eight more. About a dozen companies would be considered technology investments, a sector in which Buffett has begun venturing years after trying to evade the industry.

"The size anchor is just a huge problem," says Paul Luntzis, president of Lountzis Asset Management, which oversees over $ 200 million, including equity investments in Berkshire. Lountzis said Buffett's experience and ability to adapt calms him down. And yet, "he's so big now, where will he unfold things?" And where can things go from here? And this is a real challenge. "

And such significant stakes can make Berkshire less agile. Buffett acknowledged so much about this year's struggles at Kraft Heinz Co., as he said in February that throwing away a pledge of more than $ 10 billion would be complicated.

"You dance like an elephant, not like some kind of person in" Dancing with the Stars, "Buffett says.

As wagers in the age of crisis, such as his stakes, began to run out, Buffett looked for other ways to deploy capital. Berkshire Council released its buy-back policy last year. That allowed him to buy back $ 2.8 billion in 2019. Those moves were relatively modest – JPMorgan spent more than $ 6 billion on net repurchases in the third quarter alone – but this is a noticeable change for an investor who prefers to spend money on buying operating companies or clicking shares in other companies.

The widest productivity gap between the Berkshire and the S&P 500 in recent years may give Buffett more incentive to jump into the market for his own shares.

"There are no 'not many options' for big deals," Jim Shanahan, an analyst at Edward Jones, said in an interview. "All the more reason to question, given the stock valuation, why they have not been more aggressive in the market by buying back their own shares. This may represent the best use of money at the moment and may be the easiest route to place capital.

(Adds Buffett's shares in paragraph seven.)

To contact the reporter on this story: Catherine Chiglinsky in New York at kchiglinsky@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Linus Chua

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