Category Archives: investing

With Berkshire Hathaway recently releasing their annual report, Warren Buffett mentions that their performance in 2012 was “subpar” even though they have a growing book value of $24.1 billion and a stock portfolio consisting of 41 companies worth $75.3 billion.

In the most recent letter to Berkshire Hathaway shareholders, Warren Buffett said that ownership interest in the top four companies American Express, Coca-Cola, IBM and Wells Fargo will likely increase at some point in the future. At the end of the year, the total unrealized gain was worth $26.7 billion. From all of these shares mentioned, Berkshire Hathaway gained a total of $1.1 billion in dividends. Here’s a link to the complete Berkshire Hathaway shareholder letter.

Since they are heavily investing in DaVita Healthcare Partner, the behavior of Berkshire Hathaway shows investors they believe that the healthcare provider of kidney dialysis services will continue to grow in Europe and the United States throughout 2013. The company has recently added many shares of DVA to the Berkshire Hathaway portfolio – and as of February 27, 2013, they currently hold 14,808,959 shares.

Here’s a brief review of the top four companies mentioned in the annual letter to shareholders written by Warren Buffett: AXP, KO, IBM and WFC.

Wells Fargo & Co. is Warren Buffett and Berkshire Hathaway’s number one holding. They consist of about 20% of their overall portfolio, and they currently have 439,857,861 shares of the financial institution.

The large banking institution Wells Fargo & Company is in service to one out of every 3 households in the United States of America, as well as 35 other countries. Buffett often speaks very highly of the fantastic management of this bank. It is ranked fourth in assets out of all the banks, but it currently ranks first in market value of its common stock out of all banks in the United States. This is one of the fastest recovering banks during the industry implosion that took place a few years back. The management of Wells Fargo was responsible for turning around the bank just several years ago.

During the past, Warren Buffett has mentioned the bank’s low cost of funding, which is a powerful advantage when it comes to lending. Wells Fargo & Co. is a company incorporated under the laws of Delaware. They are a financial holding company, as well as a bank holding company and they are registered under the Bank Holding Company Act of 1956. The market cap of Wells Fargo & Co. is $187.38 billion. Its shares currently trade near $35.50, they have a P/E ratio of 10.6, and their P/S ratio is 2.2. The dividend yield of the company’s stock is 2.6%. They also possess an annual average earnings growth of 1.5% over the last 10 years.

In a previous annual letter, Warren Buffett commented, “the banking industry is back on its feet, and Wells Fargo is prospering. It’s earnings are strong, its assets solid and its capital at record levels.”

Coca-Cola is Warren Buffett and Berkshire Hathaway’s number two holding at the time of this writing. They consist of about 19.3% of the Berkshire Hathaway portfolio, and the company currently owns 400 million shares.

Coca-Cola is a worldwide brand and a company that is known for its carbonated beverages, and also known for its juices and tea drinks. Seventy five percent of the revenue generated by this company is from countries outside of the United States. The Coca-Cola brand is famous in almost every country in the world, and this includes Africa.

The company is considered to be very healthy, and it is consistently growing. The annual Coca-Cola earnings over the last 10 years have been 9.6% consistently. The soda manufacturer has a market cap of $172.16 billion. At the time of this writing, the shares traded at $38.63. The current P/E ratio is 19.6, and the P/S ratio is 3.7. Coca-Cola’s current dividend yield is 2.6%. They received a business predictability rank of five stars from GuruFocus. Buffett said that he was late to the Coca-Cola party, and he commented on the longevity of the brand at one time. He bought his shares in 1988 along with shares of Freddie Mac. At the time, Buffett said this in regards to his new purchases:

“In 1988 we made major purchases of Federal Home Loan Mortgage Pfd. (“Freddie Mac”) and Coca-Cola. We expect to hold the securities for a long time. In fact, when we own portions of outstanding businesses with outstanding management, our favorite holding period is forever. We are just opposite of those who hurry to sell and book profits when companies perform well but who tenaciously hang onto businesses that disappoint. Peter Lynch aptly likens such behavior to cutting the flowers and watering the weeds.”

International Business Machines Corp. (IBM) is the number three Berkshire Hathaway holding. They currently consist of 17.3% of the Berkshire Hathaway portfolio, and number 68,115,484 shares.

It is widely known that Warren Buffett has praised the leadership of IBM. They rescued this company from the brink of bankruptcy 20 years ago and turned it into the successful company that it is today. In the last annual letter written by Warren Buffett, he mentioned that IBM management has created extraordinary operational accomplishments, saying, “Their financial management was equally brilliant, particularly in recent years as the company’s financial flexibility improved. Indeed, I can think of no major company that has had better financial management, a skill that has materially increased the gains enjoyed by IBM shareholders.”

IBM was incorporated in New York on June 16, 1911 under the name Computing–Tabulating–Recording Co. International Business Machines Corp. has a market capitalization of $227.92 billion. At the time of this writing, the shares traded at $204.5 per share. The current P/E ratio is 14.1, and the P/S ratio is 2.2. The IBM dividend yield for company stock is 1.7%. Over the last 10 years, International Business Machines Corp. has had an annual average earnings growth of 12.1%. GuruFocus has rated IBM with the business predictability rank of five stars.

American Express Co. (AXP) is the number four holding in the Berkshire Hathaway portfolio. They currently make up 11.6% of the portfolio, and Berkshire Hathaway owns 151,610,700 shares.

American Express Company is another Warren Buffett favorite. In an effort to create an entire value chain, the company segmented its credit card lending business into three separate businesses: international card and global commercial services, US card services and global network and merchant services. As the owner of the entire chain of value, AXP has created a very profitable niche for itself throughout the financial service market. This presents a tremendous potential for profits. Being it has a very closed loop of its own related services and products, as well as marketing, the pricing of American Express has a competitive advantage already built-in.

American Express Company was originally founded in 1850 as a joint stock association. They incorporated in 1965 as a New York Corporation. The American Express market cap is $69.06 billion. It shares currently trade at $62.5. The P/E ratio is 16, and the P/S ratio is 2.3. The stocks dividend yield is 1.3%, and the American Express Company has seen an average earnings growth of 5% over the last 10 years. GuruFocus has given American Express a business predictability rank of 3.5 stars.

Berkshire Hathaway is drawn to the fair value computation of American Express, and they are a stock currently undervalued with lots of room to grow. In addition, they have a nice dividend. American Express presents a nice opportunity for many investors and according to the recent shareholder letter from Warren Buffett, he will probably be adding to this position in the near future.

Warren Buffett and Berkshire Hathaway released their annual letter to shareholders last Friday. There were plenty of useful comments on a wide variety of topics revolving around investing, and this document will be a major part of the conversation of investors over the following weeks ahead.

Warren Buffett touched upon one area in his letter to shareholders revolving around the type of investment that very few investors have in their portfolio: stock options. Buffett has used options to boost the profits of Berkshire Hathaway, and in his shareholder letter, he talks about his belief that options can produce profits of a greater magnitude later on in the future. By making this claim, Warren Buffett calls into question if the entire open market for this type of investment is potentially mispriced – and it creates other opportunities for intelligent long-term investors.

Let’s now take a look into Buffett’s argument a little bit further, and overturn some stones by discussing ways to take advantage of this untapped opportunity.

The Big Bull Market Bet

During the years 2004 until 2008, Warren Buffett and Berkshire Hathaway took massive exposure upon themselves within the options market. They were selling put options on the major stock market benchmarks covering Europe, Japan, the UK and the US. By doing so, Berkshire Hathaway was extending its traditional insurance business to provide protection that is stock market related for its counterparties. Berkshire Hathaway brought in $4.2 billion by selling these put options, and just like the other premiums Berkshire receives from its insurance businesses, they turned around and invested these billions of dollars in sales into its stock holdings and operating companies.

When the market melted down in 2008 and throughout the early part of 2009, the put options looked like a really bad move. At the time, Berkshire Hathaway was sitting on what appeared to be a potential $10 billion loss, with the possibility that the losses would be even greater if the market stayed low past the options expiration dates, which range from the years 2018 through 2026. But at the time of this writing, the current intrinsic value of the options are now below the premiums Berkshire Hathaway received, thanks to the large bull market that’s happened over the last four years. Overall, Buffett expects the final amount due under the options to be a lot less than the current figure of $3.9 billion.

Is There a Flaw in Long-Term Option Pricing?

Brendan Conway of Barron’s posted a fantastic blog post last Friday afternoon, which reminded investors of Berkshire Hathaway of the history behind these Buffett puts. As commonly noted, Buffett has gone to tremendous lengths in one of his previous shareholder letters to describe the inefficiencies and pricing of the options market and how Buffett planned to exploit it.

The root of the options problem lies specifically in the volatility assumptions made in the very commonly used Black-Scholes formula. From year to year or day-to-day, stocks can move rather abruptly, and the assumptions of volatility often are baked into the price of options. But when you look at them over longer periods of time, stock market returns are much smoother, and Black-Scholes will value options more highly than it is actually appropriate – which makes them much better to sell instead of buy, and this is especially true when you have puts expecting the market to continue to trend upward.

Warren Buffett’s behavior points to a much different view toward trading options for the long term on the buy side. When Buffett has previously provided financing to large corporations like General Electric and Goldman Sachs, he used warrants that are options like, and they provide a long-term equity kicker to Berkshire Hathaway with this investment. By being willing to hold onto these warrants strongly points to Buffett’s belief that volatility on the downside is overestimated, then the upside volatility is also underestimated, which will make long-term call options the better buy for investors.

Can Anyone Take Advantage of This?

The short answer is no. The deals put together by Warren Buffett are not typically available to your average investor. The long-term options available to the public will normally only run just a few years into the future, but that is not a long enough time for an entire bull – bear cycle to run its course for reversion to the mean to take place.

The one place where long-term options are available at this time is in financial stocks. This is thanks to the TARP bailouts, so five to six year warrants are currently available from several major banks and other financial institutions. For Capital One and Hartford Financial, these warrants are already in the money – which means that the current price of the shares already exceeds the exercise price of the warrant. This will limit the impact of volatility estimate errors on the warrant price.

But on the other hand, Bank of America and Citigroup still have warrants where the strike prices are well above the share value at the current market price. With the bulk of the value coming from the time value and the estimates of volatility that are generated, the warrants for these shares are very susceptible to the type of mispricing that Warren Buffett is discussing.

Take a Look for Yourself

Remember that options and warrants are a very specialized type of investment and they present a substantial risk. But regardless, the questions revolved around proper pricing for the long term bring up the possibility that you can use this type of option to your advantage, which means you might want to take a closer look.

The long-term track record of Warren Buffett’s success has made him the best investor of our time, but currently Berkshire Hathaway shares are trading at their all-time high. Is it the right time to buy Berkshire right now? You decide.

The year 2012 showed us that Warren Buffett is as excellent at picking people as he is at picking stocks. In the 2013 annual letter to shareholders, one piece of good news shared by Warren Buffett was the overall performance of his new two managers, Ted Weschler and Todd Combs. Both managers were able to outperform the S&P 500 by margins in the double digits, said Buffett – which tells us that the 16% return made by the S&P in 2012 was topped by at least 26%. They both managed to beat their boss as well.

Now that they did such a fantastic job in their first year with Berkshire Hathaway, Buffett increased the amount of assets they manage to the tune of $5 billion each. And for the very first time, one of their holdings – DirecTV – showed up on the official list of common stock owned by Berkshire Hathaway, and it is a holding whose market value exceeds $1 billion. The combined holding of both men was worth $1.154 billion at the end of 2012, which you can compare to the original value of $1.057 billion.

Both of these managers were able to achieve such large returns due to the way their top stock holdings performed: DaVita HealthCare Partners, DirecTV and Viacom Inc.

DaVita HealthCare Partners

DaVita is continually in the news for Berkshire Hathaway’s constantly expanding holding of this company, which as of the last purchase on February 27, has ballooned to 15.52% of its outstanding shares. They opened this position in the fourth quarter of 2011, and Berkshire has increased this holding 10 times since November 26, 2012.

The market value of the company has risen by over 40% over the last year.

DaVita is a kidney patient care and kidney dialysis company, and they have grown quite rapidly over recent years. Over the past five years, the average annual growth rates for revenue are 10%, EBITDA is 10.4%, for free cash flow they are 39.6% and book value is 7.2%.

The company reported very strong earnings in the fourth quarter and the year-end of 2012 results on a year-over-year basis. The company’s adjusted net income was $173.3 million, which works out to $1.68 per share, during the fourth quarter, and $612.4 million, and $6.25 per share throughout 2012. You can compare these results to $148.1 million, or $1.56 per diluted share, and $492.4 million, or $5.11 per share, for the quarterly figure and year-end figure that ended December 31, 2011.

Each of these fourth-quarter results have excluded the expenses in relation to the acquisition of HealthCare Partners Holdings LLC, one of the largest national operators of physician networks and medical groups, which they obtained in November of 2012.

The total fourth-quarter revenue was $2.48 billion as opposed to $1.79 billion comparatively and $8.19 billion for the full year in 2012, as opposed to $6.37 billion in 2011 comparatively.

The company purchased 22 dialysis centers in the United States of America, and opened up 22 more in the United States of America during the fourth quarter of 2012 alone, while also purchasing 10 dialysis centers and opening up two more outside of the United States.

At Peninsula Capital, Ted Weschler’s previous company, he had purchased between 20% and 40% of his entire portfolio in DaVita between the years 2001 and 2011.

DirecTV

Berkshire first started picking up shares of this company during the third quarter of 2011, and continued to do so throughout the fourth quarter of 2012. Berkshire now owns over 34 million shares of DirecTV, and currently has a 5.6% ownership of the entire company. Prior to becoming a member of Berkshire Hathaway, Ted Weschler owned 18.45% of his total managed assets in this company. DirecTV’s stock has earned over 5% in the past year, and as of the time of this writing, the share price is $49.28.

DirecTV is a company that is growing rapidly, and they have particularly done so over the last five years. The average annual growth rate over the last five years is 27.7% in revenue, 28.7% in EBITDA, and their free cash flow has grown by 20.3%.

Throughout the fourth quarter, DirecTV increased their revenue by 8% to the tune of $8.05 billion, and the net income increased to $942 million. Compare that to $718 million in the fourth quarter of 2011. For the full year statistics, they saw an increase in revenue to $29.7 billion from $27.23 billion during 2011. The company net income increased to $2.95 billion, from the 2011 amount of $2.61 billion.

The increase of 31% in the company’s net income during the fourth quarter was a primary result of higher operating profit, and 18% pretax gain for selling the Game Show Network, plus a lower effective tax rate. The 9% increase in the full year’s revenue was largely in part due to higher subscriber growth at DTVLA and DirecTV in the United States, plus higher ARPU at DirecTV US.

The revenue from the companies DTVLA increased by 23% to the amount of $6.24 billion specifically because of strong subscriber growth of 26%, which was a four-year record of 4.42 million, and they saw very strong growth in Argentina, Brazil, Colombia and Venezuela.

GuruFocus points out that DirecTV has been issuing new debt over the last three years, in the amount of $8.8 billion, although the debt level is very acceptable. The P/E ratio is 10.6, which is close to their ten-year low, and the P/S ratio is 1.05, which is also very close to their ten-year low.

Viacom Inc.

Berkshire Hathaway first started acquiring shares of Viacom during the first quarter of 2012, and currently owns around 7.6 million shares. They did not make any new purchases during the fourth quarter. The market price of Viacom gained about 23% over the past year. The company is currently trading at $63.70 at the time of this writing. The company recently surpassed its 52-week high of $60.84 over the last few days.

Viacom is a company focused on entertainment, and they have two main segments in which they operate – filmed entertainment and media networks – and they own such brands as MTV Films, Nickelodeon Movies, and Paramount Pictures just to name a few for you.

Over the last five years, Viacom has seen an average annual growth rate of 6.5% for revenue, EBITDA is 22.3%, free cash flow is 19% and the book value growth rate is 8.7%.

The company’s results in the fourth quarter saw a 16% decrease to $3.31 billion. This is primarily due to a loss of 37% of their filmed entertainment revenue through a mix of releases and inopportune timing. The net earnings increased from $212 million – $470 million.

During the fourth quarter, Viacom repurchased 13.3 million shares to the tune of $700 million in aggregate. They still have $3.85 billion remaining on the $10 billion stock repurchase program. The company has a dividend yield of 1.84%. Over the past three years, Viacom has issued $1.5 billion of new debt, although the overall debt level is currently acceptable. However, the operating margin of Viacom has been expanding.

One of Viacom’s measurements is very close to its ten-year high, and one recently surpassed it: the P/S ratio of 2.36 is near the ten-year high, and the current share price of $63.70 recently surpassed the 10 year high of $60.84 per share.

Some of Viacom’s upcoming film projects to potentially increase earnings and revenue include Star Trek Into Darkness, World War Z, Pain & Gain and G.I. Joe: Retaliation.

So many investors look at Warren Buffett as the all-time greatest long-term investor in history. When you have a net worth of more than $60 billion, there’s no question that he is certainly a successful investor by any and all means.

Buffett is a value investor, and he follows the teachings of his mentor Benjamin Graham and Phil Fisher. He only purchases stocks that have a strong long-term future, and they also must produce high returns and maintain a capital structure that is conservative.

His methods for picking stocks have been extremely successful, and Berkshire Hathaway, his investment firm, is one of the costliest stocks on Wall Street for very good reasons. As of September 2011, shares were about $100,000 each. But since then, they have skyrocketed to over $150,000 as of today. That is a 50% return on your investment in just a year and a half, if you didn’t do the math on your own.

As an investor, it would certainly be smart to follow the lead of a gentleman like Warren Buffett as far as investment philosophy and stock picking are concerned. If you study Warren Buffett’s quarterly 13 F filings, you can find out exactly what he is buying and selling during the prior quarter.

But this is unfortunately old news by the time the 13 F filings are published. So you’re not going to get as good a price on the stocks of Warren Buffett purchases at the time that he either buys or sells. It may turn out better for you. It may not. But buying at the right time and selling at the right time is what truly makes the difference when it comes to profiting in this business. I’d also like to mention that just because Warren Buffett buys or sells a stock, it doesn’t reflect the true value of a company one way or another.

So you can use the 13 F filings as a way to guide yourself, but don’t look at them as an all-encompassing authority. As an example, if you recognize that Buffett is either buying or selling a certain company, make a note of it and look deeper into the company yourself. Determine if you feel that it is either the time to buy or sell.

When going over Warren Buffett’s latest 13 F filing, there were two particular companies that really stood out because he sold off shares during the third quarter of 2012. Both of these companies have performed solidly during this time. This should prove to you that just because a professional like Warren Buffett is selling the stock, does not mean that the company is no longer worthy to buy or hold.

Let’s take a much closer look at the two companies that Warren Buffett sold recently, even though their fundamentals are very solid…

Johnson & Johnson

Up until very recently, Johnson & Johnson was actually one of Warren Buffett’s largest holdings. But during 2011, Johnson & Johnson acquired Sythes, a Swiss medical device maker in a one third cash, two thirds stock deal. Buffett was not a big fan of this purchase, because it diluted the value of the shares of Johnson & Johnson.

But Buffett didn’t immediately overreact. He waited for the opportune time, and during the third quarter of 2012, he sold off 95% of his Johnson & Johnson holding. His stake in the company went from over 10 million shares for less than 500,000. The company is actually now one of Warren Buffett’s smallest holdings overall.

What has the stock done since then? Well, the shares have actually soared much higher since then. They were $68 per share in November of 2012, and as of today they are currently worth $76 a share. So it’s fairly obvious that the Warren Buffett selloff didn’t have any negative effect in the stock at all. The investors who purchased Warren Buffett’s shares have made around a 12% return on their investment in such a short period of time.

Let’s not forget that Johnson & Johnson has a 50 year track record of paying dividends, and the $3 billion they have in cash shows us that it will be very easy for them to maintain their dividend payments.

Procter & Gamble

During October of 2012, Buffett spoke out and mentioned that he was concerned about Procter & Gamble’s valuation. At the time, he cut back his holding by around 7 million shares throughout the third quarter of 2012. But he still owns about 53 million shares of the company, so he is obviously not bearish on this stock completely.

If you bought Procter & Gamble during November of 2012, you are making about 15% on your shares presently worth 77 dollars.

The more interesting story revolving around this company is that famed activist short seller Bill Ackman has purchased over 4 million shares of Procter & Gamble during the third quarter of 2012. His stake has now increased by more than 34 million shares, which he owns through Pershing Square Capital Management, his hedge fund.

Bill Ackman has been pressuring this company to increase their profitability, and throughout the fourth quarter of 2012, the company’s year-over-year earnings have risen 12% to $1.22 per share. Additionally, Procter & Gamble has increased their 2013 earnings guidance from $3.97 per share to $4.07 per share. This is between a 3% to 6% increase from the 2012 earnings.

Please consider that following the lead of a professional investor will not guarantee you any success. You must do your due diligence while choosing investments. It doesn’t matter which investor is buying or selling it.

If you plan on taking action on an investment, it’s not a bad idea to follow the moves of a professional investor like Warren Buffett. As a matter of fact, it’s a good way to start making your stock picks. Just be sure to pay attention to what the professionals are buying, but you have to do your own research to figure out if this investment makes sense for you. You do not necessarily know Warren Buffett’s investment strategy, and it may not fit in with your own wants and needs.

Back on October 16, 2008, CEO, chairman and value investor Warren Buffett wrote an op-ed piece that was published in the New York Times. The piece was titled “Buy American. I am.”

This op-ed piece first appeared in print on October 17 of the same year, right during the height of the financial crisis. Stock prices were swinging wildly from day to day, and the market was plummeting.

As a matter of fact, on the day Warren Buffett wrote the piece, on October 16, the S&P 500 swung 4% from the lowest value to the highest value in that single day. The S&P opened at 909, dropped to 865 and then surged in value to 947 before it closed at 946. The Dow Jones had a very similar volatile day. At its height, it traded at 9013 and then closed at 8979. That is a 5% swing during the day.

Even in the middle of all of the noise and scary volatility, Warren Buffett urged people to stay calm.

He wrote:

“The financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So… I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100% in United States equities.

Why?

A simple rule dictates my buying: be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But the most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower in a month – or a year – from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.”

Warren Buffett predicted his buying movement a little bit too early. The stock markets actually hit their bottom on March 9, 2009.

But if you paid attention to the market close on the date of his op-ed piece, which was October 17, 2008, to yesterday’s close on February 12, 2013, and you followed his advice and bought the S&P 500 and the Dow, you would currently be up 61.6% in the S&P and 58.4% in the Dow Jones.

Did you take Warren Buffett’s advice and buy as many stocks as you could during those dark days in 2008 and 2009?

Did you learn anything about your own risk tolerance during the Great Recession?

As DaVita continues its expansion, Warren Buffett’s company Berkshire Hathaway is expanding their holdings right along with them. On January 9, 2013, Berkshire Hathaway increased their stake in the company by 1.3%. This is the 12th time they purchase more shares since last October, which we learned according to GuruFocus. This is the second purchasing move made by Berkshire Hathaway during the new year. They are even more interested now that DaVita is partnering with its competitor Fresenius Medical Care, and they are making great headway in the European market.

This most recent purchase now puts Berkshire Hathaway in control of 14.65% of the company, and they are the largest shareholder of DaVita. The Vanguard group is next in line, and they only own 5.52%. This company is in the number eight position in Warren Buffett’s high-quality, predictable and selective portfolio of companies he buys for the long-term.

2013 has barely begun, and yet DaVita has already made two significant steps in their growth. This past January 8, 2013, they announced their partnership with Fresenius Medical Care, another leading company in the dialysis services sector, and they have provided this type of care to 33% of the market in 2011. Under the agreement made, FMC will use DaVita Rx prescription drug services in order to fulfill and then ship their oral medications to Medicare patients in the United States of America.

DaVita Rx was created back in 2005, and is the first and biggest full-service pharmacy exclusively dedicated to patients with kidney troubles. The partnership is going to help Fresenius comply with a mandate by Congress that says all oral end-stage renal disease medications be part of a bundled payment model by the year 2016.

On January 7, 2013, the company announced that they purchased nine dialysis centers from Fresenius, and they were located in Poland and Portugal. With these acquisitions, the company now has 33 total dialysis centers outside of the United States, and 1,912 centers within the United States.

This is a company focused on high-growth, and their revenue has increased annually at a rate of 19% over the last 10 years. During this same time period, their EBITDA grew at a rate of 21.4%, their free cash flow rose 9.8% and the company’s book value grew at 34.7%.

Since investors have a really strong interest in apartments, it’s only been a matter of time till that interest made its way to brokerage firms that bring sellers of apartments and apartment buyers together, and possibly even provide them with financing at one fell swoop.

In a deal that was completed on December 31, 2012, Berkadia  Commercial Mortgage, formerly part of Capmark Financial, but now a commercial real estate lender owned by Berkshire Hathaway, acquired Hendricks & Partners, which is a Phoenix-based multifamily sales brokerage firm that currently has 37 offices across the United States of America.

And last week alone, Jones Lang LaSalle also widened its brokerage operations of a multi family variety by moving into Texas and buying The Apartment Group, LTD based in Dallas. Right after the acquisition is completed, the founder and president of The Apartment Group, Jeff Price, is going to join JLL’s capital markets team, where he will lead the company’s overall multifamily brokerage in the state of Texas and act as their managing director.

It’s no surprise that the Texas acquisition really adds to JLL’s existing multifamily operations as a brokerage firm, but Berkadia surprised everybody by entering into the market, and they now brought a new player into the quickly evolving real estate services business of a commercial variety.

“Our industry continues to evolve toward providing as many services as possible to our customers,” says Hugh Frater, Berkadia CEO, in a statement that he made when he announced the acquisition. “In this new partnership we see tremendous opportunities to not only expand our existing client relationships with the offer of additional services, but also to build new relationships in the commercial real estate industry.”

“Since the company was formed back in 2009, Berkadia has been able to steadily grow its strength and presence in the commercial real estate industry,” added Warren Buffett, chairman and CEO of Berkshire Hathaway. “We see Berkadia’s acquisition of Hendricks as another significant step in the growth of their multifamily expertise and services.”

Hendricks & Partners, founded by Don Hendricks in 1995, is currently one of the largest privately held firms exclusively focused on multifamily sales and investments. The company, which can operate as a separate business unit under the new name Hendricks – Berkadia, brings a brand-new service line to go with Berkadia’s lending operations, mortgage origination and loan servicing businesses.

Don Hendricks is going to join Berkadia’s Executive Committee as the new CEO of Hendricks – Berkadia, and they also named him the executive vice president of the company. The firm is going to continue to stay located in Phoenix, Arizona.

Berkshire Hathaway and Leucadia National Corp., who joint venture to form Berkadia, are now known mostly in this industry as a special servicer, managing a portfolio that mainly consists of distressed properties with more than $200 billion under its management at the end of the year 2012.

The company is also an insurance company correspondant, as well as other institutional lenders, and they are an approved lender for Freddie Mac, Fannie Mae, and HUD/FHA, where they provide capital for clients to either buy, refinance or build commercial properties and multifamily dwellings.

 

Under Frater, their CEO – who is also a former executive VP at PNC Financial Services, where he previously led their real estate division, and also served as the CEO of Midland Loan Services, which is a subsidiary of PNC in their software development and loan servicing business – Berkadia has fortunately been expanding its lending operations steadily, and this includes their proprietary lending program in which they originate fixed-rate loans for packaging commercial mortgage-backed securities (CMBS), and they offer floating-rate bridge loans.

During the year 2011, Berkadia brought in Stephannie Mower, a former executive vice president with Cushman & Wakefield out of Texas, also head of its Dallas Capital Markets team, where she had the opportunity to help create a new line of business providing commercial real estate investment sales on a national level.

Jones Lang LaSalle also set up its acquisition as a capital markets play, saying the additional support of The Apartment Group will add to its strategic plan to become the largest capital markets provider in the commercial real estate arena.

Over the last four years, JLL has brought in over 75 debt and equity and multifamily sales specialists on to its roster in the capital markets. At the end of last year, they were approved as a Freddie Mac Multifamily Program Plus seller/servicer in Texas, which added to its already approved Southeast and Mid-Atlantic territories.

“These full-scale capabilities will allow us to offer clients the most comprehensive multifamily platform in the Southwest,” says Jay Koster, the current president of JLL’s Americas Capital Markets.

Warren Buffett is a billionaire investor who has taken out stakes in some of the largest United States banks, who tells us that the lenders have rebuilt their capital to the levels where they aren’t a possible threat to the economy any longer.

“The banks will not get this country in trouble, I guarantee it,” said Buffett – the CEO and chairman of Berkshire Hathaway, based out of Omaha, Nebraska – in an interview that he gave over the phone last week. “The capital ratios are huge, the excesses on the asset side have been largely cleared out.”

Major lenders including Citigroup Inc. and Bank of America Corp. have sold off their assets, bolstered their balance sheets and cut many jobs after they repaid the 2008 taxpayer bailouts, when these companies were truly overwhelmed by losses on housing market related securities. All of those actions helped raise the value of Berkshire Hathaway’s holdings, and increase financial stocks at the same time.

Berkshire Hathaway has invested in at least four of the seven biggest lenders in the United States of America by assets, and has also taken out more than a $14 billion stake in Wells Fargo and Co., based out of San Francisco. They have a $5 billion stake in Bank of America, and they have $5 billion worth of warrants to purchase shares of Goldman Sachs Group Inc. Berkshire Hathaway has a stake in U.S. Bancorp as well.

“Our banking system is in the best shape in recent memory,” said Buffett.

Past bank regulators and executives tell us that the biggest lenders still pose some risk to the United States economy even four years after the bailout, plus 2 1/2 years since legislators passed the largest major reforms to regulation on Wall Street since the Great Depression.

Trading Loss

Last year, J.P. Morgan Chase and Co. took a trading loss of $6.2 billion, which reminded America of our concerns for the banking industry. Sandy Weill, former CEO of Citigroup, mentions that lending money and taking deposits should be split off from investment banking as a way to prevent another major financial crisis.

Other investors have also spoke about their doubts and the accounting of banks. Even after the stock rally last year, J.P. Morgan, Bank of America, Goldman Sachs and Citigroup are all trading at less their book value, which is a calculation of how much a company’s assets should be worth if you subtract their liabilities.

There were mergers taking place during the financial crisis that brought about criticism, saying that too big to fail banking companies are getting even larger. Buffett mentions that this shouldn’t worry investors at all. Canadian banks managed to get through this crisis a lot better than other banks in many nations, as the biggest firms in Canada took hold of more market share than their counterparts in the United States did.

U.S. Advantages

“We do not have an unusually concentrated banking system compared to the rest of the world, and there are certain advantages in the largest capital market in the world to have banks that are somewhat consistent with the size of those markets,” said Buffett.

The biggest United States banks are going to face another round of Federal Reserve stress tests to figure out whether or not they have enough capital to raise dividends and buy back shares of their stock. Brian T. Moynihan, CEO of Bank of America, tells us that he’s confident BOA is going to pass even though they failed in 2011, when he did not receive the approval to increase the dividend.

Buffett also lent Bank of America credibility by providing the bank capital during 2011, after the company saw a 45% decline in share price during an eighth month period. This trade also followed moves during 2008 that Warren Buffett made by helping out General Electric Company and Goldman Sachs during the financial crisis. Both of the companies bought back the preferred shares that they sold to Warren Buffett. He also expects that Bank of America may potentially do the same.

Improved Condition

“Their condition has improved so significantly, and interest rates are so low, that they have the chance to do a number of things in that respect,” said Buffett. “I may like to keep it, but if it makes sense for them to call it, they’re going to call it.”

The preferred shares that Berkshire Hathaway owns of Bank of America pay an annual dividend of 6%, and they can redeem them at any time for the amount of $5.25 billion, according to the terms of the deal that was made. The deal also gives Warren Buffett 10 year warrants to buy 700 million shares of common stock from Bank of America at $7.14 apiece. Bank of America recently closed at $11.43 per share. If Warren Buffett were to exercise that option at those prices, he would make about $3 billion.

Buffett mentions that Berkshire Hathaway is most likely going to wait toward the end of the contract before they exercise that option.

“We’re in no hurry,” said Buffett. “Nine years from now I would think that Bank of America as well as Wells Fargo and probably the other major banks will be worth considerably more than they are now.”

A spokesman for Bank of America named Larry DiRita chose not to comment on Warren Buffett’s Bank of America investment.

Their Tier 1 capital ratio has almost reached 9% as of September 30 based on the newest standards internationally, and it’s up from about 8% just three months earlier. Their long-term debt dropped to $286.5 billion by the end of the third quarter, and this is down from $399 billion just one year earlier.

Distend your believe for a moment and try to picture yourself inheriting some money – what would you plan to do with it? Would you invest it in the stock market? Would you make a big purchase? Would you use the money to pay off some of your debts? What if your boss told you to put your faith in him and allow him to invest it for you?

Many decades ago, Elizabeth Hanon and her husband Harry did what I’m sure a lot of people would do if they found themselves in a similar situation: they politely said “no, thanks” to the thought of investing their hard-earned money with Elizabeth’s boss.

But here’s the hitch: her boss was the Oracle of Omaha Warren Buffett, although he wasn’t really anybody at that time.

Passing up the opportunity to invest with Warren Buffett turned out to be one of the biggest mistakes that Harry Hanon ever made, and it’s one of his biggest regrets, we learned from Kent Hanon, who is his son.

Harry recently passed away in the year 2004, and he was 91 years old. Although he might not have capitalized on the investment opportunity of a lifetime, he didn’t die poor or not wealthy, since he built himself a few homes across the United States, which he turned around and then sold for profit. He also took up investing on a casual basis later on in his life, which he looked at as a “valuable and interesting hobby,” although it didn’t net him a huge profit which we also learned according to his son.

“Until the day he died, I reminded him of this thing with Warren Buffett,” Kent Hanon mentions to an interviewer with The Huffington Post in an interview. “We could have been well-known millionaires along with him.”

Instead of putting his inheritance money in the hands of Warren Buffett, future billionaire, Harry invested his money in a pyramid scheme and lost the entire sum that he acquired. Once Warren Buffett was known as the People’s billionaire – and you can recognize him in photos chowing down on Dairy Queen ice cream, or drinking Coca-Cola and hanging out with rap mogul Jay-Z – the entire Hanon clan could only laugh, said Ken Hanon. They couldn’t imagine that their mother’s boss, who was really “just a guy,” that they knew, was capable of achieving such success.

“Everybody gave my dad a hard time, deservedly so,” said Hanon.

We’ve all noticed that Warren Buffett is very fond of making farm analogies, as well as analogies about the heartland, so it really doesn’t come as a major surprise that Berkshire Hathaway took up a stake in the tractor maker Deere and Co. last quarter.

John Rafal of Essex Financial Services, who’s famous for making great individual stock picks, likes the combination of Deere’s income (with the now 2.2% dividend yield) as well as growth. The managing director of PIMCO, Neel Kashkari, is also fond of the company. Thomas Russo, of Gardner Russo & Gardner fame, has been adding onto his hedge fund’s stake in Deere throughout the entire year.

More surprising than anything else, the shares in Deere seem to be more popular with value investors then shares in Caterpillar, the archrival of Deere & Co. Caterpillar is currently the biggest maker of farm and construction equipment throughout the world, and that also happens to be the core business model of Deere too. Caterpillar has a market cap of $53.52 billion compared to Deere’s $33.91 billion. Cat’s annual revenue is nearly double that of Deere’s revenue.

Because of that impressive background, Caterpillar is usually the star performer of this category, while Deere is often relegated to mediocrity. But over the past six months, this trend is starting to finally reverse. Shares in Deere stock are up roughly 13%, while Caterpillar stock is down about 11%.

What’s the difference in price direction? Both of these companies did quite well during 2011. Since there were high crop prices, this fueled plenty of equipment buying in the farming industry. But on the flip side, both companies experienced a loss of sales because the drought this year hurt farm bank accounts.

Investors are most likely to look at the sources of growth between the two companies. Caterpillar’s growth is mainly coming from selling mining equipment to overseas companies. Deere, on the other hand, is seeing its largest growth from making forestry equipment sales and domestic construction.

There isn’t too much optimism in the mining industry at this time. In North America, coal is looked at as a tainted product. Since Obama was re-elected, there isn’t much hope that the Democratic administration will ease off on environmental restrictions. China is experiencing slow economic growth, and they are also one of the largest consumers of coal. So you shouldn’t expect any sales in China to boost Caterpillar’s revenue like it may have once been in the past.

On the other hand, Deere is still making about three quarters of its profit in North America, and analysts are predicting that an economic recovery is on the horizon. Caterpillar’s forays into emerging markets like India and Brazil seem to be a much safer bet than their business dealings in China at this time.

Deere’s P/E ratio is currently at 11 right now. This is very low for the stock, even though there number one competitor Caterpillar only has a P/E ratio of about eight. Plus, Deere has a growing dividend, and company earnings cover this more than adequately.

In the short term, the high price of crops will continue to help Deere, because they will fuel a large level of farm activity. It’s also expected that some of the crop insurance checks for drought losses will end up going to equipment purchases.

For the long term, the demand for food across the world continues to skyrocket, and the equipment we use to cultivate this food is desperately in need of an upgrade. You don’t need to be a genius to realize that there is a bright future in tractor sales.