By Sue Chang, MarketWatch
Reuters
Warren Buffett has invested only a small portion of Berkshire Hathaway’s
vast portfolio outside of the U.S., including Tesco, the U.K.-based
retail chain.
SAN FRANCISCO (MarketWatch) — Three cheers for the red, white and
Buffett. Few investors embody the patriotic spirit of the American
heartland as much as Warren Buffett, with his folksy, down-to-earth wit,
Nebraska roots and buy-American ideals. But that hasn’t kept the
82-year-old billionaire from bargain-hunting on distant shores.
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Yet even with his considerable investment acumen and resources, the chairman of conglomerate Berkshire Hathaway Inc.
BRK.A
-0.24%
BRK.B
-0.20%
has essentially played it safe by putting most of his international
holdings in developed countries that have withstood both the euro-zone
debt crisis and the global economic slowdown comparatively better than
their peers.
Among Berkshire’s major stakes at the end of 2011 were four non-U.S. companies: South Korea’s Posco
PKX
-2.38%
KR:005490
-1.18%
; France’s Sanofi S.A.
SNY
-0.30%
FR:SAN
-0.79%
; Germany’s Munich Re
MURGY
+0.31%
DE:MUV2
+0.12%
and the United Kingdom’s Tesco PLC
TSCDY
+0.30%
UK:TSCO
-0.07%
.
These stocks account for a fraction of Berkshire’s investment portfolio,
but like their U.S. counterparts, they are all bellwethers for their
respective markets. And while they don’t exactly fit the mold of what
Buffett would describe as “wide-moat” companies — low-cost producers or
businesses with powerful brands — they do boast strong competitive
advantages.
“They are not necessary in the top tier of the wide moat category,” said
Paul Larson, chief equity strategist at Morningstar. But, he adds,
“They all have something going for them.”
Read more: Let Buffett's 'moat' protect your portfolio.
‘Buyer of choice’
As Buffett’s biographer, Alice Schroeder, relates in “The Snowball:
Warren Buffett and the Business of Life,” Buffett started looking for
investments in a country with a market that was “overlooked and
undervalued” in 2004. He found it in Korea and by the end of 2006,
Berkshire owned a 4% stake in Posco valued at $1.16 billion. Berkshire
also bought a 2.9% stake in Tesco, then worth $1.82 billion.
With its purchase of an 80% stake in Israel’s Iscar Metalworking for $4
billion, 2006 undoubtedly marked Berkshire’s emergence as a
“globe-trotting” company.
“More and more, Berkshire has become ‘the buyer of choice’ for business
owners and managers,” Buffett noted in a letter to shareholders at the
end of 2006. “Initially, we were viewed that way only in the U.S. (and
more often than not by private companies). We’ve long wanted,
nonetheless, to extend Berkshire’s appeal beyond U.S. borders.”
In 2007, Berkshire reported a stake in Sanofi, while Munich Re was added
in 2010. Over the past decade, there have been other foreign
investments for Buffett, including PetroChina, Swiss Re and BYD Co. But
at the end of 2011, only four foreign investment holdings in the
Berkshire portfolio had a value of more than $1 billion.
Read more: 10 stocks from Buffett and other top investors.
Munich Re (Germany)
Berkshire’s investment in reinsurer Munich Re makes sense, given
Buffett’s long history with the insurance industry, Larson said.
Berkshire’s 20.1 million shares of Munich Re, or 11.3% of the company,
were valued at around $2.5 billion at the end of 2011, making it
Berkshire’s biggest foreign holding.
Munich-based Munich Re is the world’s largest insurer by premium
revenue, with key operations in reinsurance, insurance and health care.
It’s listed on the DAX 30
DX:DAX
-0.11%
and the DJ Euro Stoxx 50
XX:SX5E
-0.42%
.
The company’s return on equity at the end of 2011 was 3.3% while debt
leverage was 18.3% at the end of 2011, according to the company. In
August, Munich Re reported its second-quarter net profit rose 9.8% to
808 million euros ($1.06 billion) from 736 million euros ($965.5
million). Gross premium revenue rose 5.5% to 12.6 billion euros ($16.5
billion).
Roderick Wallace, an analyst at S&P Capital IQ Equity Research,
raised his 2012 profit forecast for the company to 2.75 billion euros
($3.6 billion) from 2.55 billion euros ($3.3 billion), citing improved
revenues.
Posco (South Korea)
Berkshire owned 5.1% of the world’s fourth-largest steel mill at the end
of 2011. “This was a bet on the Korean economy, but the company itself
has a relatively good position on cost,” Larson said.
Formerly known as Pohang Iron and Steel, Posco was established in 1968
by the Korean government more as a symbol of its industrial aspirations
rather than a reflection of economic reality. Along with its New
York-listed American Depositary Receipts, Posco trades on the Korea
Stock Exchange
KR:SEU
-0.26%
and on the London Stock Exchange.
Posco was privatized in 2000 as part of the government’s effort to
restructure state-run entities and its name was officially changed to
Posco in 2002. It has 33 affiliated companies and is the sixth-largest
business conglomerate in Korea with combined sales of $58.3 billion.
Posco’s return on equity was 9.5% in 2011, according to Samsung
Securities. Net debt to equity ratio was 50.1%. In July, it reported its
second-quarter profit slumped to 466 billion Korean won ($417 million),
from 1.37 trillion won ($1.2 billion) a year earlier
.
Even so, some analysts believe Posco is underpriced, given its growth
potential. “Its ability to generate stable earnings outpaces those of
its peers,” said Chris Kim, an analyst at Samsung Securities in Seoul.
Sanofi (France)
Buffett favors diversified firms with strong development pipelines that regularly bring products to market, Larson said.
Sanofi fits that bill. Berkshire held a 1.9% stake in Sanofi, the
world’s sixth-largest drug company, at the end of 2011. Headquartered in
Paris, Sanofi bought Aventis in 2004 and Genzyme in 2011, as part of an
effort to grow through mergers and acquisitions.
Flagship medicines include sleeping aid Ambien and blood thinner Plavix.
Sanofi also manufactures taxotere, which is used in breast cancer
treatment. The company’s products are sold in 170 countries and Sanofi
has a significant presence in emerging markets, which account for 30% of
sales.
In July, Sanofi reported second-quarter net profit climbed 16% to 1.17
billion euros ($1.4 billion) from 1 billion euros ($1.3 billion) a year
earlier. Sales edged up 0.4% to 8.87 billion euros ($11.6 billion).
Shares of Sanofi are listed on Euronext Paris
XX:N100
-0.50%
and foreign investors account for 62.1%. Sanofi’s New York-listed shares are up 25% in 2012 so far.
Tesco (United Kingdom)
As of Jan. 13, Berkshire held a 5.1% stake in Tesco, the third-largest
retailer in the world by sales behind Wal-Mart Stores Inc. and Carrefour
S.A. The company does business in Europe, Asia and the U.S., where it
operates 185 Fresh & Easy grocery stores.
Tesco reported a net profit of £2.8 billion ($4.5 billion) in fiscal
2012 ended Feb. 25, up from £2.7 billion ($4.4 billion) in the year-ago
period. Sales, meanwhile, rose to £64.5 billion ($104.6 billion) from
£60.5 billion ($98.1 billion).
Tesco is rated a hold by Sam Hart at U.K.-based investment manager Charles Stanley. The company is listed on the FTSE 100
UK:UKX
-0.37%
.
“Tesco has a credible plan in place to revive its underperforming U.K.
business, but the process is likely to be a protracted one,” Hart said
in a June research report. “The current valuation suggests these risks
are probably largely discounted, but the shares are unlikely to perform
until clear evidence emerges of an improved like-for-like sales
performance relative to peers.”
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Read the full transcript of the March 2 Squawk Box Interview with Warren Buffett
Download the 2010 Berkshire Hathaway Annual Report
Download the 1977 - 2010 Warren Buffett Letter's to Berkshire Hathaway Shareholders
Warren Buffett @ Amazon
Read the full transcript of the March 2 Squawk Box Interview with Warren Buffett
Download the 2010 Berkshire Hathaway Annual Report
Download the 1977 - 2010 Warren Buffett Letter's to Berkshire Hathaway Shareholders
Warren Buffett @ Amazon
 | The Essays of Warren Buffett: Lessons for Corporate America, Second Edition by Warren E. Buffett
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 | The Snowball: Warren Buffett and the Business of Life by Alice Schroeder
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