Berkshire Hathaway (BRK.A Quote - Cramer on BRK.A - Stock Picks) rebounded from its lowest level in more than five years after an analyst said the company's opportunities are increasing, but the stock eventually reversed course and closed lower for the day.
Billionaire Warren Buffett's Berkshire Hathaway has seen its stock decline sharply over the last year as economic conditions worsened severely. However, Fox-Pitt Kelton analyst Gary Ransom upgraded the stock Monday, arguing that more of the company's cash can be put to work, the valuation is attractive, and there is some upside earnings potential in the reinsurance businesses in 2009.
Ransom set his price target for Berkshire shares at $100,000, which would provide about 30% upside from current levels. He argues very simply that he believes "the time is right to own [Berkshire Hathaway]."
"The stock has reached a historically low valuation even considering the market declines so far in 2009," Ransom wrote. "The stock has performed poorly recently, down 20% year to date versus down 15% for the S&P 500. Our main point on valuation is that historically, the current valuation levels have been opportune times to buy the stock."
Ransom said that the current environment is conducive to the Oracle of Omaha's investment style, even if Buffett has been criticized lately for some of the transactions Berkshire has made.
"Although the stock market has declined considerably in recent months, and despite the fact that this also hurts Berkshire's book value, we believe Buffett's long term view on stocks makes this an attractive time to acquire either companies or equities," Ransom wrote. "He seems to have a preference for whole operating companies in recent years, but stocks may be becoming more attractive as well."
However, shares of Berkshire ended down $1,400, or 1.8%, to $75,600. The stock certainly has a lot of ground to make up if Ransom expects it to regain the $100,000 level. The next major catalyst could come later this week when Berkshire announces its fourth-quarter results. The Associated Press reports that Buffett will release his annual letter to investors on Saturday.
Ransom said that the biggest contributors to the decline in Berkshire's value from September to December were American Express (AXP Quote - Cramer on AXP - Stock Picks) and Wells Fargo (WFC Quote - Cramer on WFC - Stock Picks).Although there were some changes in the holdings between September and December, including additions to Burlington Northern (BNI Quote - Cramer on BNI - Stock Picks) and Constellation Energy (CEG Quote - Cramer on CEG - Stock Picks), and reduced positions in Johnson & Johnson (JNJ Quote - Cramer on JNJ - Stock Picks) and Procter & Gamble (PG Quote - Cramer on PG - Stock Picks), Ransom argues that the overall implied value of the September holdings using December prices was within 5% of the actual value of the new December holdings.
"This movement in value due to the equity holdings explains a large portion of the decline in the stock's value in recent months," he wrote.
Ransom also notes that using the list of holdings Berkshire had as of December, the declines in value reduced equity by $4.4 billion through the end of January and by a cumulative $8.2 billion through Feb. 20.
"So the first quarter so far has not been quite as bad as the fourth quarter, but obviously there is more time to go until March 31," he added.
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