Barron\'s 03.16.2020

(やまだぃちぅ) #1

March 16, 2020 BARRON’S M3


could buy, such as blue-chip stocks like


Alphabet(GOOGL),Microsoft(MSFT),


Visa(V), andCostco Wholesale(COST).


It is also possible he could provide rescue


financing to companies in the hard-hit


travel industry. And there has been specu-


lation that he might invest inBoeing(BA).


Buffett, 89, often does his rescue deals


through convertible preferred stock, which


is senior to common shares, pays a high


dividend, and comes with an equity kicker


that gives Berkshire upside participation if


the common stock rallies. A Berkshire res-


cue can be useful to a struggling company


because it comes with Buffett’s imprimatur.


During the financial crisis, Buffett did


just that, buying $5 billion of 10% convert-


ible preferred stock fromGoldman Sachs


Group(GS) and $3 billion of 10% convert-


ible preferred fromGeneral Electric(GE).


While not a rescue deal, Buffett agreed to


buy $10 billion ofOccidental Petroleum’s


(OXY) 8% preferred stock last spring with


equity warrants, as Occidental sought fi-


nancing for its bid for Anadarko Petroleum.


One advantage that Buffett provides to


companies seeking financing is a quick


decision—often in hours. These deals some-


times take shape over the weekend.


It is also possible that Buffett might buy


an entire company. Cruise industry leader


Carnival(CCL), for instance, now has a


market value of about $11 billion after a 65%


plunge in its stock this year, to $17.


Given the rout in airline stocks, there has


also been talk that Berkshire might buy an


airline. It already owns about 10% of each


of the four leading U.S. carriers:Delta Air


Lines(DAL),American Airlines Group


(AAL),United Airlines Holdings(UAL),


andSouthwest Airlines(LUV). It recently


added to its stake in industry leader Delta.


Buffett, however, said in a CNBC inter-


view in February that it was unlikely that


Berkshire would buy an airline, citing regu-


latory reasons, including its large stake in


American Express(AXP), which has a


credit-card partnership with Delta.


Asked about a purchase of a major air-


line, here’s what he said: “It’d be very un-


likely that we would do that. I’m not saying


it’s impossible. But—it’s complicated.”


Buffett does only friendly deals, so any


merger would come after the company in-


vites Berkshire to bid.


Berkshire is taking its own lumps in its


large equity portfolio, which totaled about


$250 billion at the end of last year. Some of


its wholly owned companies, including the


Burlington Northern Santa Fe railroad, are


also exposed to a weaker economy.


Barron’sestimates that the Berkshire


equity portfolio is down by about $40 bil-


lion since year-end 2019, hurt by its big


holdings in such financial companies as


Bank of America(BAC),Wells Fargo


(WFC), American Express, andJPMorgan


Chase(JPM).Apple(AAPL) is the largest


holding, accounting for about 30% of its


portfolio. It is down about 5% this year,


against a 16% drop for the S&P 500.


Berkshire’s class A shares closed down


7%, to $289,000, this past week. Its book


value ended 2019 at around $261,000 per


class A share. We estimate book value is


now between $245,000 and $250,000 a


share due to the decline in its portfolio.


Based on that estimate, Berkshire would


be trading at about 1.2 times book value—


low by the standards of recent years, but


understandable in the context of the big


market decline this year.


Berkshire’s fans think the stock is attrac-


tive, given its relatively low valuation, the


company’s strong balance sheet, and its


ability to make investments when others


may be unable to do so.


This is the kind of panicked market that


Buffett relishes and may never see again.


—Andrew Bary


Industry Action


Performance of the Dow Jones U.S. Industrials, ranked by weekly percent change.*


–12.90% Telecommunications


–13.01 Health Care


–15.65 Technology


–15.87 Consumer Services


–16.74 Consumer Goods


–18.32 Industrials


–18.93 Utilities


–19.36 Financials


–19.77 Basic Materials


–30.80 Oil & Gas



  • For breakdown see page M36. Source: S&P Dow Jones Indices


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