Warren Buffett (Trades, Portfolio) is often asked about his portfolio of stocks. Buffett follows Benjamin Graham and most value investors approach to stock ownership as treating each stock position as if you own the "entire" company. It is a basic tenant. Thus, Buffett routinely answers when asked about stocks held in Berkshire's portfolio that he would "Love to own any one of them if the price is right." Well, Buffett has one stock in his portfolio that I believe he might make BRK's next acquistion. The company is Chicago Bridge and Iron.
Warren Buffett (Trades, Portfolio) began purchasing shares in Chicago Bridge and Iron (NYSE:CBI) in early 2013 around the mid-$50 range. He based upon the latest SEC reports for BRk has about 9.55 million shares valued around $627 million currently and down from around $850 million. This is most likely a Buffett pick given its postion size and how the company's business compliments so much of BRK's operating businesses like Burlington Northen and Mid-America Energy (i.e utilities and oil piplines, etc.) to name just a few. CBI would be a tremendous benefit to Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B).
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- BRK.A 15-Year Financial Data
- The intrinsic value of BRK.A
- Peter Lynch Chart of BRK.A
Since Buffett and BRK began purchasing shares of CBI, the share price has gone nearly straight up in value until recently. The company has declined in price from around $89 to its current $65.57. This nearly 26 percent decline in value has been somewhat attributed to a research report claiming CBI's accounting practices for acquiring Shaw Industries was fraudulent and that CBI was reaping large and unsustainable profits because of how they accunted for the "purchase of Shaw". So the question comes down to CBI's "purchasing accounting" treatment.
As a long-term investor (1996 bought BRK.A for $16,350 per share) of BRK and observer of Warren Buffett (Trades, Portfolio), I know that Buffett "says" things like "Accounting is the language of business". I know Buffett "does" things like sells out BRK's entire positions in Freddie Mac and Fannie Mae because "we just could not justify their accounting practices." You think Fannie and Freddie might have some complex accounting at that time prior to 2008? I think so. I also know that Buffett is probably one of the "greatest" serial acquirers of businesses in the history of American business and is prbable more than proficient into what is right and what is wrong for companies to do in their accounting of acquisitions.
Buffett purchased CBI after the Shaw acquisition and Buffett was more than aware of the companies accounting practices one would assume given that he frequently talks about reading stock/company prospectuses down to the footnotes as entertainment on a daily basis. I believe Buffett is fully aware of the accounting used as most likely his fellow partner Charlie Munger (Trades, Portfolio) (Note: How many letters, articles, and talks has Munger given on the craziness of the accounting profession and how he would handle it? A lot!) and it is probably good. I would error to the side of Buffett being in this stock over a no name research firm that doesn't even list the names or bios of its partners regarding the accuracy of the research, and if the price in the report of $37 is the right value then Buffett was completely wrong by buying in the mid-$50s and would probably buy the whole company before seeing it hit $37. Buffett likes to say that a company's falling share price bothers him as much as "the falling price of hamburger meat at the grocery store knowing that I am going to be eating hamburger in the future." Well, CBI's services to BRK given BRK's massive capital expenditures associated with the railroad tracks and bridges, oil piplines, power plant reactors including nuclear and that the entire US infastructure needs to be upgraded is a lot of "BRK hamburger". Analysts project that CBI's EPS growth will be over 15% per year for the next 3 to 5 years. CBI is projected to have operating EPS of $5.90 in 2015. Thus, CBI appears cheap, has a bright future and fits nicely in BRK's wheelhouse.
In my opinion, Buffett wants to buy CBI and it could be his next acquisition given its recent share price decline. I believe it was not too long ago that Buffett mentioned he was close to buying a company but just couldn't get it done. When asked who the company was and he would not comment because there was only a couple of them and giving the size of the purchase you could figure it out. He did say it was based in Europe. Oh, Chicago Bridge and Iron is based in Europe.
My opinion is CBI would be a great addition to BRK!!! Just my opinion.
Happy investing to all, and please do your own homework before buying, selling or holding CBI or any other stock mentioned in this opinion piece.