How Berkshire Hathaway shareholder Warren Buffett ‘s letter could lift the company’ s stock

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As Warren Buffett prepares to put the final touches on the long-awaited annual letter

Berkshire Hathaway

shareholders, the Director has much to deal with.

They include the underperformance of Berkshire shares (ticker: BRK.A and BRK.B) over the past one, five, and 10 years, Buffett’s cautious approach to new investments, and the positive record of what Berkshire has gained over the past decade.

But that letter – due on February 27, along with the annual report and fourth – quarter earnings – may help write Berkshire ‘s next chapter. All you need to know is to start a province.

A 2% share would be a good starting point, representing around 40% of expected 2021 earnings. It may build the stock by expanding the potential investor base for those who want or need shares.

Berkshire has executed its stock repurchases, buying back $ 15.7 billion of stock in the first three quarters of 2020, or about 3% of its outstanding shares. But with $ 146 billion in cash and a projected earnings of $ 25 billion this year, it has the potential to pay dividends as well as buy back stock.

“Berkshire should pay an allowance; This would increase the attractiveness of the shares to investors looking for a conventional income, ”said David King, co-manager of Columbia’s flexible capital income fund. “Given the size and financial strength of Berkshire, the company is unique in its unpaid payrolls and that should change. ”

Berkshire has not paid an allowance for more than 50 years. Why? Buffett’s view is that a dollar in the hands is better than one in the hands of shareholders. That was long as Buffett was working on his investment and construction magic, but it has not been so true in recent years. Buffett declined to comment for this article.

In his 2012 annual letter, the Chief Executive addressed the issue of the department, arguing that the approach would be better, and more tax effective, for investors seeking income- included selling a small portion of their Berkshire stock each year.

“Firstly, shares issue a specific cash policy on shareholders. If, say, 40% of the policy’s earnings, those who want 30% or 50% will be blocked, ”Buffett wrote. “Our 600,000 shareholders are covering the shore in their ambitions for money. It is safe to say, however, that many of them – perhaps most of them – are in a net saving mode and logically prefer not to pay at all. ”

In 2014, Berkshire custodians vehemently rejected proxy recommendations on shares.

E = Measurements

Sources: Bloomberg, Edward Jones

But Berkshire’s currency has been doubling since then, notes Edward Jones-based analyst James Shanahan. “A ration is a good idea if it’s just because the cash balance has grown so much,” he said, adding that large repurchases in Berkshire are more difficult than in other large companies. as it has less liquidity in its stock.

Berkshire class A shares have gone behind the

S&P 500 index

with 40 percentage points since the end of 2018. They now look attractive at around $ 368,000, less than 1.3 times the year-end 2020 book value of about $ 287,000 and about 23 hours of 2021 earnings by -reasonable. His Class B shares trade around $ 243.

Berkshire has traded at nearly 1.4 times the book value in the last five years, and employment is expected to climb in 2021, thanks to businesses open to a booming economy , such as the Burlington Northern Santa Fe railway.

However, the last decade has been one of the missed opportunities for Buffett – with interest

Apple

(AAPL) is the notable exception. While the recently announced big buys went in

Verizon Communications

(VZ) and

Chevron

(CVX) made waves, Berkshire was likely to be a net seller of about $ 9 billion of stocks last year. The company also failed to take advantage of market turmoil and make any major purchases.

So what else would Berkshire shareholders hope to see in the annual letter? More publication would help. It is difficult to know how well Precision Castparts and other major businesses in Berkshire are doing because the company is not breaking out their products.

There is also a question of continuity, with Buffett turning 90 in August last year. Buffett could hand over the CEO’s job to Berkshire vice president Greg Abel while he was chairman and oversee Berkshire’s investment portfolio, including $ 270 billion of stocks.

Berkshire has not named an heir similar to Buffett, but it is widely accepted that Abel, 58, will be in charge of Berkshire ‘s major uninsured operations, including Burlington Northern.

That would give Abel important experience while Buffett is still on the horizon, allowing Abel to take new steps, as could hold Berkshire ‘s first investment day.

And whether it’s Abel or anyone else, a split would put pressure on a Buffett fan to reinvest Berkshire’s employment torrent and align the conglomerate with most other big companies.

Write to Andrew Bary at [email protected]