By: Elliot Turner
While most traders will focus on Goldman Sachs (GS) and Freeport McMoran (FCX) following their early morning earnings reports, I am going to throw out a curve ball today. The Oracle of Omaha, Warren Buffet, has gifted us traders with a 1-for-50 stock split of the Berkshire Hathaway (BRK.B). Over the years, Buffet expressed his distaste for share splits; however, in order to facilitate the stock component of the purchase of Burlington Northern (BNI), he needed more shares in the float (don’t believe that he did the split solely to attract small investors; a major cause was the need for more shares to exchange in the BNI deal).
In anticipation of the split, the “B” shares rallied aggressively over the last two days, closing yesterday just under the top of its half-year range on massive volume. BRK.B traded nearly 250k shares yesterday, while on an average day, shares rarely changed hands much more than 50k times in a day.
It will be interesting to learn how much of a premium can be added to the share price based on the enhanced liquidity that comes along with a modestly priced stock. Some investors shied away from Berkshire, despite its solid fundamentals, because of the risks that come with a light volume investment combined with an innate fear of large numbers. With a lower share price, Buffet can now attract a wider array of investors and traders, and will now be eligible for membership in the S&P 500. An insertion in the S&P to replace BNI will attract investments from the many funds that track the index and can provide a nice catalyst for a move higher.
Today, I will look for Berkshire to hold yesterday’s “close” of $69.52 for a long. $70 will be an important level in the early history of Berkshire as a tradeable stock, as it corresponds to the $3,500 pre-split resistance. Watch price action around that level and look for an entry. My plan for today mostly consists of familiarizing myself with the stock and how it trades, as I believe over the coming weeks and months this stock will become a favorite of traders.
