Berkshire Hathaway Stock Looks Cheap by Warren Buffett’s Measure

Posted 18 Oct 2018 08:55 AM Edited 18 Oct 2018 09:32 AM

How do you make Berkshire Hathaway appear underpriced? Look at its earnings the way CEO Warren Buffett does.

By using a financial measure called 'look-through earnings,' which seeks to incorporate the profits of the companies in Berkshire's huge $200 billion equity portfolio into Berkshire's earnings, its shares suddenly seem cheaper, according to a report Wednesday from JPMorgan analyst Sarah DeWitt.

She calculates that Berkshire's projected 2019 earnings rise about 50%, to $15.44 per share, based on the look-through calculation'much higher than her $10.25 estimate for operating profits, which is line with the current consensus estimate.

Her estimates are for Berkshire's class B shares (BRK.B), which are equivalent to 1/1,500 of the A shares (BRK.A). Buffett has often referred to look-through earnings in his annual shareholder letters as a good way to analyze the company.

Using the look-through 2019 earnings estimate, Berkshire trades for just 13.6 times earnings, against about 20 times using a conventional earnings calculation. Berkshire's class B shares are off $1.33, or 0.6%, to $208.50 in morning trading Wednesday. The class A shares are off $1,915, to $312,834.

'Berkshire is undervalued on look-through earnings,' wrote DeWitt. 'Berkshire has noted historically that reported earnings are an inadequate measure of economic progress at Berkshire in part because earnings only include the dividends received from equity holdings (included in net investment income) even though these dividends only represent a fraction of the earnings attributable to Berkshire's ownership.'

Berkshire's largest equity holdings are Apple (AAPL), Wells Fargo (WFC), Bank of America (BAC), and Coca-Cola (KO). Take Apple as an example. Berkshire includes in its reported earnings only the dividends that it receives on its stake of 258 million Apple shares based on accounting rules. Those dividends are running at an annual rate of $2.92 a share. The look-through earnings would give Berkshire credit for Apple's earnings, which are expected to top $13 a share in 2019.

DeWitt has an Overweight rating and $250 price target on Berkshire's class B shares.

She wrote that Berkshire stock, which is up about 5% this year, has been held back by 'key man risk' associated with Buffett, who turned 88 in August. She wrote that there is 'already a massive discount in the stock for this risk.'


Starbucks Stock Is Getting Analysts Excited Again. Here’s Why

Posted 18 Oct 2018 08:52 AM Edited 18 Oct 2018 09:34 AM

Starbucks stock has trailed the S&P 500 in 2018 not exactly too exciting. But the shares have soared since the summer, and are now approaching a 52-week high.

So is the stock in or out of favor Activist investor Bill Ackman sees an opportunity, having recently announced a stake in Starbucks (SBUX). His thesis: It's a powerful business that trades at a discount to recent average price-to-earnings ratios because of slowing U.S. business, scaled back growth targets, and leadership changes. All of that, he figures, is manageable.

Meanwhile, several analysts have recently backed the stock. Wells Fargo 's Bonnie Herzog bumped her price target to $64 from $60 on Wednesday, putting her among Wall Street's more bullish analysts, citing the likelihood of 'improving sentiment as investors shift their focus from fiscal 2018 to Starbucks' long-term growth opportunities.'

Herzog believes that the company's delivery partnership with Alibaba (BABA) should help as Starbucks continues to expand in China and thinks product innovation and digital initiatives, as well as store-level improvements, can energize U.S. sales.

When investors buy in, according to Herzog, the shares should rise; her target is about 8% above current levels. (The stock rose more than 2% to around $59 on Wednesday.) 'Investors are likely to overlook near-term weakness in anticipation for an acceleration in growth,' she wrote.

Wall Street's average price target is right around current levels, according to FactSet. Few of the analysts who cover the stock have boosted their price targets this month, and some believe that the maturation of Starbucks' business will inevitably mean the shares will command slimmer multiples.

Still, Herzog isn't the only October bull.

On Oct. 3, KeyBanc Capital Markets started coverage of the company with an Overweight rating and a $65 price target that's Wall Street's highest, according to FactSet.

'The combination of lowered expectations, increasing visibility around sales drivers, sizable general and administrative savings initiatives, and valuation support from dividends and share repurchases sets up a favorable risk/reward scenario for the stock,' he wrote.


Canopy Growth Corp(CGC): $56.83

Posted 16 Oct 2018 08:07 PM Edited 16 Oct 2018 08:07 PM




Three solid companies at record yields are recommended

Posted 16 Oct 2018 04:12 PM Edited 16 Oct 2018 04:19 PM

AT&T Inc. (T)

AT&T currently yields 6.30% at a recent low price of $31.75. Since the end of the recession it's yield range is 4.68% to 6.59%, with a brief spike to 7% during the great recession. The average yield over time is about 5%. A return to a 5% yield implies a share price of $40.00.

The steady rise in yield over the last two years corresponds with a period of great change at AT&T. In October 2016 they announced the pending acquisition of Time Warner for $108 billion, which came on the heels of the $67 billion DirectTV acquisition and numerous other significant actions. Investors were rightly concerned about the uncertainty generated by these changes. The stock price went from $43 to $30.35, and the yield rose from 4.68% to 6.59%. The fact is, however, AT&T did what was necessary to continue to compete in the rapidly advancing technology landscape, and for a company with $163 billion in annual revenue only a very large deal will make a difference. Whether AT&T made the right moves remains to be seen, but the company says that the merger will be secretive to earnings and cash flow in the first year.

Philip Morris (PM)

Phillip Morris currently yields 5.85% at a recent price of $77.89. Over the last 10 years its yield has ranged from 3.51% to 5.89% with an average of around 4%. A return to the 4% average yield at the current dividend of $4.56 implies a stock price of $114, 42% higher than today. Alternatively, an investor can buy 42% more shares today than if the price reflected the average long-term yield.

Philip Morris sells tobacco products globally outside the U.S. and with a market cap of $123 billion is one of the world's largest tobacco companies. The share price decline over the past two years reflects anti-tobacco public opinion in many parts of the world. In addition, the industry is grappling with major changes, including cannabis legalization, e-cigs, and PM's own big bet on the tobacco heating device iQOS. Many people believe that the tobacco industry is in permanent decline and that PM shares will never return to previous heights. Perhaps, but tobacco has been under attack since the Surgeon General's report in 1964, and tobacco companies have been among the best performers during that period. Altria (MO), from which PM was spun off, has been the best performing stock in the world.

Cardinal Health (CAH)

It is an even better value today at a recent price of $51.63 and a yield of 3.69%. Over the last 10 years its yield has ranged from 0.82% to 3.88% with an average of around 2%. A return to the 2% average yield at the current dividend of $1.91 implies a stock price of $95, 43% higher than today. Alternatively, an investor can buy 54% more shares today than if the price reflected the long-term yield.

Cardinal Health is part of an oligopoly in the drug and medical product distribution business, along with McKesson (MCK) and AmerisourceBergen (ABC) Over the past two years all three have been beset by two main issues. The first is a general pressure on drug prices from Medicare, health plans, and the White House. The second is the clubbing all companies in the sector received when Amazon announced it was moving into pharma supply in May 2017. As to the first issue, Cardinal has proved through 22 years of increasing dividends that it can compete with fierce competition and challenges in the macro health care environment. As for the second issue, Amazon has not made a dent in the sector and the share prices of many companies, e.g., Walgreen Boots (WBA), Kroger (KR), Target (TGT), and CVS (CVS) have already recovered from this or similar Amazon announcements. 

Summing up

Opportunities for the value-seeking, income-oriented investor have become scarce over the last few years of this bull market. Reliable dividend growth stocks near record high yields are one place where opportunity is still there. Philip Morris, AT&T, and Cardinal Health are three such companies. Investing in shares now will capture yields rarely seen in their history, as well as above average potential for capital appreciation. As might be expected, there are reasons why these three are selling at depressed prices. If everything was fine, shares would be at high prices and yields would be unremarkable. The average investor looks at the current issues each company is facing and stops there. A more farseeing investor sees instead the long histories of increasing dividends and successful execution under all economic conditions, and has confidence that they will continue to adapt, survive, and thrive. Opportunity knocks!


Upcoming Potential Dividend

Posted 16 Oct 2018 02:57 PM Edited 16 Oct 2018 03:20 PM

Company Name

Type

Ex-Date

Record Date

Date Paid/Payable

Particulars

KEPPEL REIT

DIVIDEND

20-Jul-18

24-Jul-18

28-Aug-18

SGD 0.0004 TAX EXEMPT

KEPPEL REIT

DIVIDEND

20-Jul-18

24-Jul-18

28-Aug-18

SGD 0.0138 LESS TAX



















KEPPEL INFRASTRUCTURE TRUST

DIVIDEND

23-Oct-15

27-Oct-15

20-Nov-15

010715 - 300915 SGD 0.0093 TAX EXEMPT

KEPPEL INFRASTRUCTURE TRUST

DIVIDEND

7-Nov-14

11-Nov-14

21-Nov-14

010714 - 300914 SGD 0.0082 TAX EXEMPT













SINGAPORE PRESS HLDGS LTD

DIVIDEND

6-Dec-17

8-Dec-17

22-Dec-17

SGD 0.06 ONE-TIER TAX

SINGAPORE PRESS HLDGS LTD

DIVIDEND

6-Dec-17

8-Dec-17

22-Dec-17

SGD 0.03 ONE-TIER TAX













FIRST REAL ESTATE INV TRUST

DIVIDEND

27-Oct-17

31-Oct-17

29-Nov-17

010717-300917 SGD 0.0119 TAX EXEMPT

FIRST REAL ESTATE INV TRUST

DIVIDEND

27-Oct-17

31-Oct-17

29-Nov-17

010717-300917 SGD 0.0089

FIRST REAL ESTATE INV TRUST

DIVIDEND

27-Oct-17

31-Oct-17

29-Nov-17

010717-300917 SGD 0.0006 LESS TAX













MAPLETREE INDUSTRIAL TRUST

DIVIDEND

30-Oct-17

1-Nov-17

28-Nov-17

010717-300917 SGD 0.0002

MAPLETREE INDUSTRIAL TRUST

DIVIDEND

30-Oct-17

1-Nov-17

28-Nov-17

010717-300917 SGD 0.0397 LESS TAX













MAPLETREE COMMERCIAL TRUST

DIVIDEND

31-Oct-17

2-Nov-17

29-Nov-17

010717-300917 SGD 0.0224 LESS TAX







MAPLETREE NORTH ASIA COMM TR

DIVIDEND

26-Oct-17

30-Oct-17

20-Nov-17

010417-300917 SGD 0.00693

MAPLETREE NORTH ASIA COMM TR

DIVIDEND

26-Oct-17

30-Oct-17

20-Nov-17

010417-300917 SGD 0.03021 TAX EXEMP













UNITED OVERSEAS BANK LTD

DIVIDEND

16-Nov-15

18-Nov-15

4-Jan-16

SCRIP DIV SCHEM SGD 0.2 ONE-TIER TAX













SUNTEC REAL ESTATE INV TRUST

DIVIDEND

2-Nov-17

6-Nov-17

29-Nov-17

010717-300917 SGD 0.00322 TAX EXEMPT

SUNTEC REAL ESTATE INV TRUST

DIVIDEND

2-Nov-17

6-Nov-17

29-Nov-17

010717-300917 SGD 0.00302

SUNTEC REAL ESTATE INV TRUST

DIVIDEND

2-Nov-17

6-Nov-17

29-Nov-17

010717-300917 SGD 0.01859 LESS TAX













PARKWAYLIFE REIT

DIVIDEND

15-Nov-17

17-Nov-17

8-Dec-17

010717 - 300917 SGD 0.0035 TAX EXEMPT

PARKWAYLIFE REIT

DIVIDEND

15-Nov-17

17-Nov-17

8-Dec-17

010717 - 300917 SGD 0.005













FRASERS HOSPITALITY TRUST

DIVIDEND

2-Nov-17

6-Nov-17

29-Dec-17

010417-300917 SGD 0.002272 TAX EXEMPT

FRASERS HOSPITALITY TRUST

DIVIDEND

2-Nov-17

6-Nov-17

29-Dec-17

010417-300917 SGD 0.017087













FRASERS CENTREPOINT TRUST

DIVIDEND

31-Oct-17

2-Nov-17

29-Nov-17

010717-300917 SGD 0.00022 TAX EXEMPT

FRASERS CENTREPOINT TRUST

DIVIDEND

31-Oct-17

2-Nov-17

29-Nov-17

010717-300917 SGD 0.02948 LESS TAX













CACHE LOGISTICS TRUST

DIVIDEND

30-Oct-17

1-Nov-17

28-Nov-17

010717-300917 SGD 0.0024 TAX EXEMPT

CACHE LOGISTICS TRUST

DIVIDEND

30-Oct-17

1-Nov-17

28-Nov-17

010717-300917 SGD 0.00053

CACHE LOGISTICS TRUST

DIVIDEND

30-Oct-17

1-Nov-17

28-Nov-17

010717-300917 SGD 0.01248 LESS TAX













FRASERS LOGISTICS & IND TRUST

DIVIDEND

8-Nov-17

10-Nov-17

19-Dec-17

060717-300917 SGD 0.0049

FRASERS LOGISTICS & IND TRUST

DIVIDEND

8-Nov-17

10-Nov-17

19-Dec-17

060717-300917 SGD 0.0119 TAX EXEMPT













SIA ENGINEERING CO LTD

DIVIDEND

15-Nov-17

17-Nov-17

28-Nov-17

SGD 0.04 ONE-TIER TAX


Value trap

Posted 15 Oct 2018 01:03 PM Edited 15 Oct 2018 01:03 PM