Six months may be a blip on the radar screen for someone with a 50-plus-year career, or with their investing eye toward a hazy point in the far-off future. But information about Warren Buffett’s recent buys for Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) can be useful for Buffett-minded people researching his stocks or plotting an attractive point to buy them. The chart below shows that Buffett recently has been allocating more of his investing capital toward equity securities than he has since 1998, at 63%, while cash and cash equivalents has dwindled to a multi-year low of 19% and, and fixed maturity securities likewise at a multi-year low, at 18%.
Buffett’s investing performance also over the past three years stayed about in line with the market, returning a cumulative 35.2%, compared to the S&P 500’s return of 35.5%. He performed better over the recent five-year period, returning 46.4% cumulatively compared to the market’s 8%. Over the long term, of course, he left the market in the financial dust.
Buffett (and his portfolio managers, Todd Combs and Ted Weschler), have been buying new stocks mainly in pairs over the past year and a half. In the first quarter of 2013, their new stocks were Chicago Bridge & Iron Company and Starz (STRZA, Financial) (a spin-off), and in the second, they bought Suncor Energy Inc. (SU, Financial) and Dish Network Corp. (DISH, Financial).
Several GuruFocus tools can help determine whether these stocks are still good buys since Buffett or his managers bought them.
The Stocks
Chicago Bridge & Iron Company (CBI, Financial)
Berkshire Hathaway bought 6,508,600 shares of Chicago Bridge & Iron Company in the first quarter of this year, when the price averaged $53. In the second quarter, with an average price of $58, it added 3,042,155 shares. The holding equals 6.07% of the company’s shares outstanding.
With a $7.97 billion market cap, Chicago Bridge is an energy infrastructure company dealing in design, engineering, construction and other services, with a major focus on the government. It has three divisions: Steel Plate Structures, Project Engineering and Construction, and Lummus Technology.
So far this year, investors have traded the company’s shares up more than 60%, to $74.34 on Thursday.
Buffett bought Chicago Bridge near its five-year high prices. The Peter Lynch chart indicates that the company was about fairly valued at the start of the year. The stock’s climb over the year has placed it in overvalued territory, however according to this formula:
The DCF calculator also finds the company quite overvalued, assigning it a fair value of $41.01, assuming a growth rate of 10% annually over the past 10 years. CBI grew EBITDA per share at a rate of 20.5% annually over the past 10 years, boosting the likelihood of the company achieving this future growth rate. EBITDA grew more sharply over the recent five years, at a rate of 36.1%.
The reverse DCF calculator projects that a 19.05% growth rate would be needed to justify the stock’s current 10-year-high stock price. The current price gives investors a negative 81% margin of safety at this point, according to the DCF calculator.
Revenue declines have been cause for concern, as the company’s inflow has declined at a rate of 2.1% annually over the past five years.
Another guru investor who bought CBI, John Keeley, noted in his fourth quarter 2012 letter a key growth driver for the company:
Although ADT was the top contributor from the industrial sector during the quarter, Chicago Bridge and Iron (CBI) was another strong performer in the sector. The global engineering and construction firm rose sharply in December after shareholders of Shaw Group approved Chicago Bridge and Iron’s $3 billion acquisition which was proposed in July. The combined entities will become one of the largest energy construction and engineering contracting firms in the world.
The financial effects of new acquisitions have begun to ripple through the company, as second quarter revenue rose 119% from the second quarter of 2012 to $1.3 billion.
A somewhat negative sign about the company’s valuation is that its P/S ratio is close to a two-year high, at 0.94, but this is around the same range where Buffett purchased the stock:
Suncor Energy Inc. (SU)
Berkshire Hathaway brought 17,769,457 shares of Suncor in the third quarter, when the price averaged $30 per share. Since then, the price has risen 18% to $35.49 per share.
Suncor is a pioneer of commercial development of the Canadian oil sands, that has grown into a global integrated energy company aiming for 1 million barrels of oil equivalent production per day.
Suncor stock in the last year moved very little, rising less than 8%, though it fell to a 52-week low of $26.83 in the second quarter when Berkshire purchased it. In recent weeks the stock pushed to a two-year high of $36.06 per share, which could be as much as 34% higher than Berkshire’s price, if it was purchased at a 52-week low.
That quarter, the company’s P/E ratio was 17.19, P/S ratio was 1.21. The valuation ratios also rose modestly to 20.5 and 1.4, respectively, since then.
The Peter Lynch chart also indicates that the stock is about as overvalued as it found it in the second quarter:
Assuming a growth rate of 5.4% in the next 10 years, the DCF calculator assigns Suncor a fair value of $17.12. This implies a margin of safety of negative 110%.
A reverse DCF calculation finds that the company would need to achieve a 16.76% earnings growth rate over 10 years to justify a current stock price of $35.87. The company’s previous 10-year growth rate is 5.4%, a sign that this projection is unlikely.
Dish Network Corp. (DISH)
Berkshire purchased 547,312 shares of Dish Network in the second quarter, when the price averaged $39 per share. Since then the stock increased about 26% to a 10-year high around $48.88.
Dish Network is a high-definition satellite TV company with about 14 million satellite TV customers.
In the second quarter, Dish Network had a P/E ratio of 75.93 and P/S ratio of 1.35. Its current P/E and PS ratio have increased to 87.4 and 1.6, respectively. These metrics are both near their respective five-year highs.
The Peter Lynch Chart portrays the stock becoming more overvalued since Berkshire purchased it.
The DCF calculator gives Dish Network a fair value of $21.52 (a less accurate figure due to the low predictability of Dish Network), assuming a 10-year growth rate of 14.6%. To justify the current price, the Reverse DCF calculator indicates that the company must achieve an earnings per share growth rate of 27.02% over the next 10 years. As the previous 10 years growth rate was 14.6%, this scenario appears unlikely.
See more Berkshire Hathaway stocks at its portfolio here. Also check out the Undervalued Stocks, Top Growth Companies, and High Yield stocks of Warren Buffett.
Not a Premium Member of GuruFocus? Try it for free for 7 days here!
Buffett’s investing performance also over the past three years stayed about in line with the market, returning a cumulative 35.2%, compared to the S&P 500’s return of 35.5%. He performed better over the recent five-year period, returning 46.4% cumulatively compared to the market’s 8%. Over the long term, of course, he left the market in the financial dust.
Buffett (and his portfolio managers, Todd Combs and Ted Weschler), have been buying new stocks mainly in pairs over the past year and a half. In the first quarter of 2013, their new stocks were Chicago Bridge & Iron Company and Starz (STRZA, Financial) (a spin-off), and in the second, they bought Suncor Energy Inc. (SU, Financial) and Dish Network Corp. (DISH, Financial).
Several GuruFocus tools can help determine whether these stocks are still good buys since Buffett or his managers bought them.
The Stocks
Chicago Bridge & Iron Company (CBI, Financial)
Berkshire Hathaway bought 6,508,600 shares of Chicago Bridge & Iron Company in the first quarter of this year, when the price averaged $53. In the second quarter, with an average price of $58, it added 3,042,155 shares. The holding equals 6.07% of the company’s shares outstanding.
With a $7.97 billion market cap, Chicago Bridge is an energy infrastructure company dealing in design, engineering, construction and other services, with a major focus on the government. It has three divisions: Steel Plate Structures, Project Engineering and Construction, and Lummus Technology.
So far this year, investors have traded the company’s shares up more than 60%, to $74.34 on Thursday.
Buffett bought Chicago Bridge near its five-year high prices. The Peter Lynch chart indicates that the company was about fairly valued at the start of the year. The stock’s climb over the year has placed it in overvalued territory, however according to this formula:
The DCF calculator also finds the company quite overvalued, assigning it a fair value of $41.01, assuming a growth rate of 10% annually over the past 10 years. CBI grew EBITDA per share at a rate of 20.5% annually over the past 10 years, boosting the likelihood of the company achieving this future growth rate. EBITDA grew more sharply over the recent five years, at a rate of 36.1%.
The reverse DCF calculator projects that a 19.05% growth rate would be needed to justify the stock’s current 10-year-high stock price. The current price gives investors a negative 81% margin of safety at this point, according to the DCF calculator.
Revenue declines have been cause for concern, as the company’s inflow has declined at a rate of 2.1% annually over the past five years.
Another guru investor who bought CBI, John Keeley, noted in his fourth quarter 2012 letter a key growth driver for the company:
Although ADT was the top contributor from the industrial sector during the quarter, Chicago Bridge and Iron (CBI) was another strong performer in the sector. The global engineering and construction firm rose sharply in December after shareholders of Shaw Group approved Chicago Bridge and Iron’s $3 billion acquisition which was proposed in July. The combined entities will become one of the largest energy construction and engineering contracting firms in the world.
The financial effects of new acquisitions have begun to ripple through the company, as second quarter revenue rose 119% from the second quarter of 2012 to $1.3 billion.
A somewhat negative sign about the company’s valuation is that its P/S ratio is close to a two-year high, at 0.94, but this is around the same range where Buffett purchased the stock:
Suncor Energy Inc. (SU)
Berkshire Hathaway brought 17,769,457 shares of Suncor in the third quarter, when the price averaged $30 per share. Since then, the price has risen 18% to $35.49 per share.
Suncor is a pioneer of commercial development of the Canadian oil sands, that has grown into a global integrated energy company aiming for 1 million barrels of oil equivalent production per day.
Suncor stock in the last year moved very little, rising less than 8%, though it fell to a 52-week low of $26.83 in the second quarter when Berkshire purchased it. In recent weeks the stock pushed to a two-year high of $36.06 per share, which could be as much as 34% higher than Berkshire’s price, if it was purchased at a 52-week low.
That quarter, the company’s P/E ratio was 17.19, P/S ratio was 1.21. The valuation ratios also rose modestly to 20.5 and 1.4, respectively, since then.
The Peter Lynch chart also indicates that the stock is about as overvalued as it found it in the second quarter:
Assuming a growth rate of 5.4% in the next 10 years, the DCF calculator assigns Suncor a fair value of $17.12. This implies a margin of safety of negative 110%.
A reverse DCF calculation finds that the company would need to achieve a 16.76% earnings growth rate over 10 years to justify a current stock price of $35.87. The company’s previous 10-year growth rate is 5.4%, a sign that this projection is unlikely.
Dish Network Corp. (DISH)
Berkshire purchased 547,312 shares of Dish Network in the second quarter, when the price averaged $39 per share. Since then the stock increased about 26% to a 10-year high around $48.88.
Dish Network is a high-definition satellite TV company with about 14 million satellite TV customers.
In the second quarter, Dish Network had a P/E ratio of 75.93 and P/S ratio of 1.35. Its current P/E and PS ratio have increased to 87.4 and 1.6, respectively. These metrics are both near their respective five-year highs.
The Peter Lynch Chart portrays the stock becoming more overvalued since Berkshire purchased it.
The DCF calculator gives Dish Network a fair value of $21.52 (a less accurate figure due to the low predictability of Dish Network), assuming a 10-year growth rate of 14.6%. To justify the current price, the Reverse DCF calculator indicates that the company must achieve an earnings per share growth rate of 27.02% over the next 10 years. As the previous 10 years growth rate was 14.6%, this scenario appears unlikely.
See more Berkshire Hathaway stocks at its portfolio here. Also check out the Undervalued Stocks, Top Growth Companies, and High Yield stocks of Warren Buffett.
Not a Premium Member of GuruFocus? Try it for free for 7 days here!
