MarketWatch: Need to Know

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NEED TO KNOW  July 17, 2020View in Web Browser

Warren Buffett may have found a stock he likes — his own

 By Steve Goldstein

MarketWatch: Need to Know

Warren Buffett, Berkshire Hathaway Chief Executive, speaks to the press as he arrives at the 2019 annual shareholders’ meeting in Omaha, Nebraska, on May 4, 2019.(Getty Images)

Something unusual has happened in markets over the last week. The highflying tech stocks that investors have sought out for refuge have dropped, but so have the COVID-19 recovery plays in the travel and leisure sector.

Instead, it isn’t just financials that have gained ground as the big banks have reported results, but also energy, industrials and materials sectors — all where the value stocks lie. The S&P 500 value index (XX:SP500V)  has climbed 5% over the last week, outperforming the broader (SPX)  .

Which brings us to what some would now consider a deep value stock — Berkshire Hathaway.

Warren Buffett’s company has been quiet during the pandemic, only recently agreeing to spend $10 billion of his $137 billion in available cash on a natural-gas transmission and storage business.

He has also found something else — his own company, according to the Rational Walk blog. The blog says, based on a Securities and Exchange Commission filing made in early July, that it is likely there was a buyback on the order of $5 billion to $5.5 billion of Berkshire Hathaway (BRK.A)  (BRK.B)  shares. (It involves math deriving from Buffett’s 15.54% ownership of the company that was reported in the filing, and comparing it to the shares outstanding of Berkshire Hathaway reported in a form on March 31.)

It won’t be clear until August, when the company releases its second-quarter results, whether the company will reveal the extent, or not, of its stock buyback activity.

So if there were stock buybacks, the question would be why.

“It seems likely that Buffett’s views of the range of possible economic outcomes related to COVID have narrowed somewhat, and that he might view the very worst outcomes as less likely than he did when he spoke at the annual meeting on May 2,” the blog says.

While it is true that some of the publicly traded companies Buffett owns — notably Apple (AAPL)  — have rallied during the second quarter and into July, he could have a view as the companies Berkshire Hathaway directly operates, such as Geico Auto Insurance and Duracell.

“His own assessment of the intrinsic value of the portfolio, as well as the intrinsic value of Berkshire’s operating companies, is what will inform his thinking when it comes to calculating Berkshire’s intrinsic value,” the blog says.

The buzz

There is good and bad news on the coronavirus front. Testing really has ramped up, with a record 831,918 tests performed in a day, but the bad news is the positive test rate remained a high 8.6%, according to the COVID-19 tracking project. In May, the World Health Organization recommended against reopening until positive test rates were below 5% for at least 14 days.

European Union leaders are meeting to discuss a proposed €750 billion recovery fund.

Data on the one part of the economy seemingly experiencing a V-shaped recovery — the housing market — will come when housing starts numbers are released. Consumer sentiment data also are on tap.

Netflix (NFLX)  shares slumped in premarket trade after the streaming company guided to much worse subscriber numbers than forecast in the third quarter. “As we expected, growth is slowing as consumers get through the initial shock of COVID and social restrictions,” the company said. Netflix also named the company’s chief content officer, Ted Sarandos, as co-chief executive.

Credit Suisse doubled its stock price target on Tesla Inc. (TSLA)   to $1,400 from $700 but said the stock is “priced to perfection,” meaning any material upset would drive a correction.

BlackRock (BLK)  topped earnings expectations after bringing in $100 billion in net inflows during the quarter.

The market

Dow futures (YM00)  were slightly higher, though the Nasdaq-100 contract (NQ00)  was particularly strong.

Oil (CL.1)  futures slipped, while gold (GC00)  edged higher.

The euro (EURUSD)  was trading above $1.14 with the critical EU summit under way.

The chart

In a piece on racial inequality, Goldman Sachs chief economist Jan Hatzius shows the U.S. has less intergenerational mobility, as well as a more unequal income distribution, than its peers. Policies that improve the lifetime earnings prospects of Black Americans will also add to the country’s economic potential over time, he says.

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