By Matt Phillips
June 29, 2009, 3:08 PM ET
We previously noted that some are saying shares in Buffett’s favorite stocks have been looking cheap.
Others are saying shares of the Oracle of Omaha’s beloved Berkshire Hathaway itself are trading at prices that don’t include the vaunted “Buffett Premium.” That’s the difference between the value of Berkshire’s underlying assets and the price of its shares, a gap largely attributed to Warren Buffett’s reputation as one of the world’s greatest investors.
It makes some sense that the Buffett Premium has lost some shine over the last year. After all, unlike Internet stock bubble, which Buffett and Berkshire largely sidestepped thanks to their single-minded focus on companies that produce, uh, profits, Omaha-based Berkshire suffered its worst year ever in 2008, losing 9.6% in book value per share, a common metric Berkshire uses to track performance.
According to The Journal’s Scott Patterson, Buffett himself conceded that he “did some dumb things.” They included scooping up shares of oil giant ConocoPhillips when oil prices were near a high and investing $244 million in a pair of Irish banks that hit trouble, resulting in an 89% loss.
Despite missteps, Keefe, Bruyette & Woods analysts wrote today that they see value in Berkshire thanks to the company’s core insurance and reinsurance business as well as a cash cushion of $25 billion. “At 1.3x March 31, 2009 book value, we believe that investors are no longer paying a ‘Buffett Premium’ at a time when investment opportunities for Berkshire may be better than they
have been in years as financial markets remain tumultuous.” Those analysts put a $107,000 price target on Berkshire shares, a more than 20% premium to the roughly $88,000 where Berkshire A shares are currently trading. And that price includes no Buffett Premium.
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