Market Extra: Warren Buffett’s annual letter: Here’s what investors are looking for

Market Extra: Warren Buffett’s annual letter: Here’s what investors are looking for

21 Feb    Finance News

No sleeping in for Buffettologists on Saturday.

Berkshire Hathaway Inc. BRK.A, +0.56% BRK.B, +0.50%  will release Warren Buffett’s eagerly awaited annual shareholder letter, the company’s annual report and its latest earnings around 8 a.m. Eastern on its website, where investors can also peruse the chairman and chief executive’s past missives.

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Investors of all stripes have dived into the lengthy letters over the years to pick up Buffett’s insights on a range of topics beyond Berkshire’s performance.

But there are some issues that have become perennial sources of concern, and may be near the top of the list when investors scan Buffett’s latest offering.

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Indeed, the company’s ever-growing pile of cash, which had swelled to $128 billion as of the end of the third quarter, is likely near the top of the list for many investors. Buffett has frequently addressed the topic in the past, noting the lack of reasonably priced, “elephant”-sized acquisition targets capable of moving the needle for a conglomerate the size of Berkshire. The last such elephant was the purchase of aerospace company Precision Castparts Corp., for $32 billion, a deal that was announced in 2015 and closed in January of 2016.

Two years ago, Buffett used his annual letter to lay out the numerous qualities Berkshire looks for when it goes shopping for stand-alone acquisitions, including “a sensible purchase price.” He then went on to compare acquisition-hungry managers to hormone-addled teenagers.

With the cash pile still growing, investors will likely be looking for any sign Berkshire is ready to be more aggressive in buying back shares. Berkshire changed its buyback policy in 2018, clearing the way to make repurchases if Buffett and Vice Chairman Charlie Munger determine shares are trading below their intrinsic value.

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“Our calculation of intrinsic value would imply that Berkshire is trading [around] 25% below its true value,” wrote analysts at UBS, in a Jan. 29 note.

Berkshire had repurchased just $2.8 billion of shares over the first nine months of 2019, they noted. The UBS analysts penciled in around $3.8 billion of buybacks into their 2020 projections, but said they see “potential upside to these numbers if there are no meaningful acquisitions made in 2020.”

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