Even though it is run by the best investor in the world, there are a few reasons not to like Berkshire Hathaway (BRK) as a stock.
Because of its size, Berkshire is limited in terms of its investment universe. As Warren Buffett has stated numerous times, Berkshire’s returns in the future are likely to be lower than they have been in the past, simply as a function of the number of investments that can “move the needle” for Berkshire.
Furthermore, Buffett is over 80 years old. At some point, he will have to cede the rains to a less capable manager. That’s no knock on the new manager, whomever he may be; it’s just the result of the fact that the world hasn’t known an investor as good as Buffett.
Perhaps as a result of these issues, Berkshire’s stock trades at a rather low premium to book value, considering how quickly its book value has grown over the years. The stock trades for just 10% above Berkshire’s book value, even though said book value has appreciated annually by an average of 20% over the last 45 years. This low premium to book value is a rarity for this company.
So what do the analysts have to say about the stock’s prospects? Only four analysts cover the stock, and all of them rate it a “hold”. If an analyst were to cite business reasons for the hold, they may or may not be correct, but at least they would be applying the correct criteria. But check out the reasoning behind Edward Jones analyst Tom Lewandowski’s hold rating on the stock:
“It’s the cheapest that I’ve seen it in a while. It’s hard for me to get really positive on that.”
It’s incredible to me that analysts are actually suggesting something that is cheap is undesirable as an investment, but based on how the market functions, it should come as no surprise. So much for buy low and sell high!
Disclosure: No position
