Glenn Curtis May 18, 2009 12:00 pm Recommended Amazon Reading
Another weekend, another birthday party and first communion. That’s 3 in a row now. But the good news is, that's it in terms of commitments this month. From here on out, the weekends are mine.
Asian stocks were a mixed bag. The Hang Seng was closed up 1.38%, but the Nikkei was down 2.44%. The action in Europe was a bit mixed earlier this morning as well. And here in the US, we're currently trading higher.
Investors watch Berkshire (BRK)/Warren Buffett’s moves each quarter like a hawk, in hopes of learning from the legend himself and maybe putting some nice coin in their pockets at the same time. That said, there are 2 companies that Berkshire reportedly upped its stakes in that I’m banking are going to be in the news today, and which I’d like to comment on.
Wells Fargo (WFC):
It was reported that Buffett bought almost 12.4 million shares of Wells Fargo in the first quarter - certainly no small potatoes. But does it make sense to mimic him in this particular situation?
Here are some of my thoughts:
1. Obviously it cost a lot of money to tag on more than 12 million shares, and I don’t think Buffett would have dropped that kind of dough unless he thought he had a reasonable shot of making some flash down the road.
But let’s put this in some perspective. At the end of December 2008, he already had more than 290 million shares under his wing. So he only added about 4.3% to his position (in terms of the number of shares). Decent, but certainly not huge.
2. This should go without saying: Buffett is no market timer. He has a crazy-long investment horizon, which could make copying him/Berkshire exactly, a bit more difficult.
3. On March 5, Wells was at $8.10 and closed north of $24 on Friday. That’s one heck of a run, if you ask me. But do you think the shares will keep climbing the ladder upward? I sense they're due for a breather, like many of the other financials. As such, I’d be reluctant to slide my chips into the pot right now - unless I had another 290 million shares.
4. At about 13.8 times the 2010 estimate, I don’t think it’s a bad value. But it’s not super tempting either.
I’m not doubting Warren. In fact, I bet he’ll be correct over time. But it still doesn’t mean that I’ll be copying this move. At the very least, I’d rather wait for a pullback before making any kind of deposit.
Johnson & Johnson (JNJ): It's being reported that Buffett tagged on around 3.9 million shares of the New Jersey-based company. And this move catches my eye for a few reasons:
1. I think it’s a fairly big statement (to add on this amount of shares) in that at the end of 2008, it sported about 28.6 million shares. On a percentage basis, I think that’s a pretty big increase and vote of confidence.
2. It trades at about 12.3 times the current-year estimate, which I think is very reasonable.
3. Data indicates that an insider (a director) indirectly bellied up for 2,000 shares earlier in the year at $55.81, and so I see this as an opportunity to put away shares at a pretty similar price.
4. It’s hard not to like the dividend.
5. Times may be tough, and people are quite understandably, scaling back. But these are products I'd argue you can only cut back so much on, if you know what I mean.
Buffett’s move in Johnson & Johnson intrigues me, and I like the stock at current levels.
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The Warren Buffett Portfolio: Mastering the Power of the Focus Investment Strategy by Robert G. Hagstrom
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