I’d like to start off this article right away by wishing Warren Buffett a happy birthday, because he is now 82 years old. But the one thing that many people worry about is whether or not the Oracle of Omaha is going to slow down as his years start to decline. This also brings into question the stability of his investment company Berkshire Hathaway, and what it is eventually going to be worth once the CEO and chairman decides that it is time to finally call it quits for good. But as an investor there, you happen to have a lot of reasons to like the stock of Berkshire Hathaway, even if Warren Buffett is not there running the ship.
The first thing you definitely have to like about Berkshire Hathaway stock is that the price is directly on point. It hasn’t been this cheap in over 15 years, with the exception of the lowest days of the market crash between 2007 through 2009, according to Whitney Tilson who is a manager at the Tilson Focus Fund. The manager of the Wintergreen Fund, David Winters also agrees with him and says “The stock used to have a Warren Buffett premium, and that premium no longer exists.”
The Class B shares of Berkshire Hathaway, that were going for around $85 a share in early August, have lagged behind the S&P 500 index by about 4% each year over the last three years. Berkshire Hathaway is also a very attractive stock because a lot of investors happen to be undervaluing these high-class stocks all across the board, according to Winters.
The thing you really need to recognize is that the core businesses of Berkshire Hathaway are all very strong. The insurance premiums of the group insurance companies owned by Berkshire Hathaway has made an increase of 7.8% during the first quarter of 2012, when you compare it to the same quarter in the year 2011. Earnings prior to being taxed for the noninsurance businesses of Berkshire Hathaway, which include MidAmerican Energy Holdings and Burlington Northern Santa Fe, are up about 25% from this time last year.
So you have to realize that even if Warren Buffett decided to retire tomorrow, those businesses are going to continue to stay strong and Berkshire Hathaway isn’t going to suffer one bit. But better than that, Ted Weschler and Todd Combs are being groomed as potential heirs that are going to succeed Warren Buffett of his Berkshire Hathaway thrown. Berkshire Hathaway already knows who is going to take Warren Buffett’s place when he retires, but they are keeping that information close to the hip.
There is even plenty of evidence that shows us that Berkshire Hathaway themselves believe their stock is cheap. The Board of Directors at Berkshire Hathaway made a decision in September of 2011 to begin a buyback program if the stock should actually fall to 110% or less of book value, and this is based on assets minus liabilities. Inside of the annual report for 2011, Warren Buffett also mentioned it again that the program is going to continue, which basically says that the current stock price is either at that price right now, or below the 110% mark. That tells you that Berkshire Hathaway is at a significant discount to what it is actually worth.
But not only that, Warren Buffett is actually still in charge of the company, and he is still going very strong so this price is a no-brainer. Tilson said that “He can make investments that nobody else can because he is Warren Buffett.” He also believes that since Warren Buffett is very committed to the company, and he is still in good health, that he wouldn’t be surprised if Warren Buffett stays in charge of the company for another five years. “He still has some more rabbits to pull out of his hat.”