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Value Expectations
Value Expectations
Articles (5983)  | Author's Website |

If Warren Buffett Only Can Listen to us On Burlington Northern Santa Fe and Kraft Foods Inc.

January 12, 2010 | About:

In a previous post back in September, ValueExpectations.com provided an analysis of the main holdings from Berkshire Hathaway and how each company was viewed according to The Applied Finance Group’s (AFG’s) valuation model and Economic margin methodology. The 29 top holdings of Berkshire were divided into 3 buckets (Attractive, Fairly Valued and Unattractive) based on how each company ranked according to key AFG criteria including valuation.

Thus far each bucket of companies has performed just as expected.

Return Information from 9-29-09 to 1-7-10:

Attractive Co’s = 10.60%

Fairly Valued Co’s= 7.59%

S&P500 = 7.16%

Unattractive Co’s= 6.57%

The companies AFG labeled as attractive outperformed both other buckets, the fairly valued companies performed in-line with the S&P 500 and the unattractive companies underperformed the rest.

Click here to view the original article with the breakdown of Berkshire’s 29 top holdings.

Also we recently issued articles discussing Warren Buffett’s acquisition of BNI and his decision to oppose Kraft’s bid to issue more shares to fund its deal to acquire British candy maker Cadbury. ValueExpectations.com presented the case for each acquisition, both of which ultimately came to the same conclusion as Buffett.

Berkshire’s acquisition of BNI (which had been a holding in The AFG 50 that was purchased in June of 2004 with a target price of $120) is one of the few that we approved of given AFG’s extensive background in acquisition analysis. More often than not the acquiring company pays too high a premium for the target company, resulting in excessive expectations that may not be attainable. However, we have to agree with Buffett in the BNI acquisition as Berkshire was buying a great company at a price justified by very reasonable future expectations.

Also VE.com released a few articles discussing disapproval for Kraft’s bid to acquire Cadbury saying the deal made no sense as what Kraft offered was much higher than the expected benefits Kraft would receive by acquiring Cadbury. Our thoughts on this deal were then backed up by Buffett’s opposition to the deal a few weeks later.

We think Buffett ought to take some well-deserved time off to play bridge with Bill Gates, and leave it to VE.com to provide valuable insights on the equity market.


Value Expectations

http://www.valueexpectations.com/

About the author:

Value Expectations
ValueExpectations.com, by the founders of The Applied Finance Group and Toreador Research and Trading, provides institutional quality research to the investment community. Select Research Topics Include: Equity Valuation Analysis; Management Quality; Market Outlook and Impact Discussions; Recent Market Movement Reviews; Macro Valuation Trends; Sector Analysis; Political Impact on Markets; and Special Studies. The term Value Expectations is derived from our ability to calculate market expectations embedded in stock prices, sectors and indexes.

Visit Value Expectations's Website


Rating: 2.7/5 (14 votes)

Comments

Evan
Evan - 9 years ago    Report SPAM
We think Buffett ought to take some well-deserved time off to play bridge with Bill Gates, and leave it to VE.com to provide valuable insights on the equity market.


Wow, this article just reeks of arrogance. Allowing contributers like this is definitely a dumbing down of GF.
cm1750
Cm1750 - 9 years ago    Report SPAM


I try not to be uncharitable to other members if at all possible, but I agree with Evan. True arrogance - this is shown by them trumpeting their 9/29/09- 1/7/10 investment returns.

Real investors look at multi-year IRRs, and more importantly, risk-adjusted IRRs.

From their footnote: "The term Value Expectations is derived from our ability to calculate market expectations embedded in stock prices, sectors and indexes."Having the ability to back into embedded market expectations from a current stock price takes no real talent, just a basic formula - Credit Suisse has had HOLT for years, which is a similar system. The real value is determining what the future FCFs will be, not what the stock already implies. It would be like me saying in Oct 2007 that the market valuations imply good profit growth and little chance for recession. That insight and $6 could buy me a Starbucks Frappachinno.

gurufocus
Gurufocus premium member - 9 years ago
Thanks!

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