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Berkshire Hathaway’s New Buys – And One Really, Really Old One

February 14, 2012 | About:
Geoff Gannon

Geoff Gannon

411 followers
Based on Berkshire Hathaway’s new portfolio we can safely assume that Warren Buffett himself bought shares of:

· IBM (IBM)

· Wells Fargo (WFC)

While new portfolio managers – at GEICO – bought:

· DIRECTV (DTV)

· Liberty Media (LMCA)

· CVS Caremark (CVS)

· Visa (V)

· General Dynamics (GD)

· Verisk Analytics (VRSK)

· DaVita (DVA)

You’ll remember that Ted Weschler’s portfolio – before he joined Berkshire Hathaway – included DirecTV (26% of his old portfolio), DaVita (19% of his old portfolio), and Liberty Media (12% of his old portfolio). So those are clearly Ted Weschler’s stocks.

Even after changing jobs, Weschler is keeping some of the same stocks.

The two stocks Buffett himself bought are “old” news. IBM was big news when Buffett broke it on CNBC’s Squawk Box. (Remember the HAL fiasco).

And Wells Fargo has been a bit of a stealth story. Basically, Warren Buffett just keeps buying Wells Fargo whenever he gets the chance. He hasn’t been shy about telling people. He’s even mentioned it on TV. Buffett hasn’t reduced his stake in Wells Fargo since the 2008 crash – when he had to raise cash to bail out Goldman Sachs (GS), General Electric (GE), etc.

Well, he didn’t have to but they were offering convertible preferred stock – something Buffett has never been able to resist. (Just ask Bank of America).

One interesting twist in Berkshire’s 13-F is the General Dynamics purchase. Berkshire continued to add to this position.

Since the General Dynamics shares were bought for GEICO we can be pretty sure Buffett did not make the purchase himself. But Buffett did buy General Dynamics – once.

Back in 1992, Warren Buffett bought 14% of General Dynamics’s shares.

This is what Warren Buffett said about General Dynamics when he bought the stock – himself – 19 years ago:

“We were lucky in our General Dynamics purchase. I had paid little attention to the company until last summer, when it announced it would repurchase about 30% of its shares by way of a Dutch tender. Seeing an arbitrage opportunity, I began buying the stock for Berkshire, expecting to tender our holdings for a small

profit. We've made the same sort of commitment perhaps a half-dozen times in the last few years, reaping decent rates of return for the short periods our money has been tied up.

But then I began studying the company and the accomplishments of Bill Anders in the brief time he'd been CEO. And what I saw made my eyes pop: Bill had a clearly articulated and rational strategy; he had been focused and imbued with a sense of urgency in carrying it out; and the results were truly remarkable.

In short order, I dumped my arbitrage thoughts and decided that Berkshire should become a long-term investor with Bill. We were helped in gaining a large position by the fact that a tender greatly swells the volume of trading in a stock. In a one-month period, we were able to purchase 14% of the General Dynamics shares that remained outstanding after the tender was completed.”

Now, Berkshire Hathaway is a General Dynamics shareholder once again. But this time the buyer was not Buffett. And the purchase was much smaller.

In 1992, Berkshire Hathaway spent $312 million buying shares of General Dynamics. Today, Berkshire owns just $272 million worth of General Dynamics stock.

That $272 million of GD shares Berkshire owns is 1% of the company. Compared to the 14% of the General Dynamics Berkshire bought 19 years ago.

It’s interesting to wonder what would’ve happened if Berkshire had held its shares of General Dynamics all these years.

The other interesting similarity is the times. Buffett bought General Dynamics just after the end of the Cold War. And now Berkshire is buying General Dynamics just after the United States announced plans to end the second of its two long wars.

It looks like Berkshire’s new portfolio managers are following in Buffett’s footsteps.

geoff@gurufocus.com: Talk to Geoff About Berkshire Hathaway’s New Buys

About the author:

Geoff Gannon
Geoff Gannon


Rating: 4.1/5 (17 votes)

Comments

vgm
Vgm - 2 years ago
Is Weschler already at Berkshire? I recall Buffett saying something about him not arriving until January 2012.

Is it possible that the Geico buys (DTV, etc) were Todd Combs?
luishernadez
Luishernadez premium member - 2 years ago
Probably Ted spoke to Todd and explained his DTV´s thesis. But since they also bought DVA and LMCA, its seems that Ted was working part time at Berkshire during Oct-Dic 2011. DTV seems like a good business, high ROIC, but its not that cheap and the balance sheet is not that great. Maybe the source of the value comes from high FCF growth potential over the years. DVA and LMCA look pretty hard to understand and I haven´t gotten my arms aorund them. They are in the "too hard" pile for now.

On General Dynamics, I think it is a great company with very high ROIC (tang. capital I mean), a very strong balance sheet and a very wide moat. My problem is assigning a multiple on the FCF and EBIT. I have doubts regarding their long term earning power due to the fact that is directly linked to US Army (the 25% Revenue coming from Gulfstream helps though). So I wonder... is the US Army going to keep spending at least the same as now? Is it possible 10 years from now they will be spending much less? So given these doubts, I established a 13 multiple for FCF and a, 8,66 multiple for EBIT. This provides us with a discount between 21% and 31% to intrinsic value, which is definitely not large enough to buy right now.

Luis

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