Loading summary
Transcript3 lines
- [00:03]
A
This is the Value Investor Podcast with Tracy Reinek, all things value, all the time.
- [00:09]
B
Welcome back, value investors. So value stocks are in and the old economy is hot. So I've been thinking a lot lately about whether or not we as value investors should be buying the biggest value old economy stock out there. But I'm not sure it's a value, which is what my conundrum is. And yes, I'm talking about Berkshire Hathaway. It's got the old line companies like BNSF Railroad. It's got insurance, it's got chemicals, it's got energy. It has some auto dealerships, it's got some restaurants, it owns a paint manufacturer. I mean, all these businesses are the old economy. But again, those are in now. So maybe Berkshire Hathaway should be on our watch list for sure and maybe even our short list should it be they haven't reported earnings yet this year for the fourth quarter. We're waiting on that. So I'm recording this on February 18th, September. So by the time you listen to this, you may just in a short order be getting the first annual letter from the new CEO of Berkshire Hathaway. So Warren Buffett is out. He remains on the board. But the businesses are still just chugging along doing what they've always done. And this is a good environment for many of these businesses, but their earnings have lagged. I wanted to take a look at what is going on with Berkshire's earnings. We don't have that much coverage of Berkshire on Zack stock because it is such a unique conglomerate really, that if you are, say a restaurant analyst, you're not going to cover them. If you cover the other railroads, do you cover them? Maybe do. If you cover the insurance companies, you might cover them because they are considered to be a financial and they are listed on Zach's the B shares as insurance dash, property and casualty. So whatever coverage we have is probably from them on the insurance side. But how do you cover a company like this? So they just tend not to. They just say no, they did because Buffett was there. But now it's unclear what's going to be happening. So Even on Zack SA com, as I mentioned, we have 3 estimates for 2025 and 2026 on the earnings. We have only 2 estimates on the sales side. And this is a slow growing company. So for 2025, sales are expected to be up just 2.3%. But I think everybody has said that it was not that good of a year for the Berkshire group of companies, especially on the insurance side. And then 2026, up 4.7 is what's expected right now on the earnings side, a decline of earnings in 2025 by 3.9%. And then 2026, another decline, but just a half a percent. So they're basically expected to make 2114 in 2025, but they made $22 in 20. So almost no growth on the earnings side and maybe even a little bit of a decline. 2026, 2104. It's basically almost the same. It's 10 cents off of 2025. But again, we don't have a lot of analysts on the company, so that could change when we get the actual numbers. And they did have a big beat last quarter. I forget why that was. But sometimes on the insurance side or the financials, they get like a decent chunk of money coming in, so then that can boost those earnings in weird ways. They did miss the prior two quarters, and then they also had a big beat in the quarter before that in fourth quarter of 2024. So maybe, you know, we have a pattern of some sort with some of these quarters as well. But what about the valuation? So I have talked about on this podcast about how Buffett is no longer buying shares of Berkshire Hathaway with some of their extra cash. He's always said he would do a share buyback if it made sense. If the stock was a value, he would dive in. But he stopped buying couple years ago. 2024, I want to say, is when he stopped buying any of the shares when the stock did hit new highs and got very expensive. So on a PE basis, even right now, it's trading at 23.9 times. So PE isn't the end all, be all, though. But price to book is more attractive at 1.5. And so I look for 3 and under. So it is a value on the price to book side. Price to cat or price to sales is at 2.9. That's a little bit stretched. It's certainly not a value which is 1 or under. But even if I looked at 2 and under, I would consider that to be attractive. And this is at 2.9, almost at 3. So none of those are screaming like, you must get in. And some of that is because people have kind of. And this is common with Berkshire, at least when Buffett was in there, they buy it and they don't intend to sell it. They do buy and hold. People are very loyal to the Buffett way and it has paid off all these years. Why would you sell it when it's been beating the S&P 500 over a number of years. So even just looking back five years, this is during the pandemic, it is beating the S&P 500. The shares of Berkshire B shares, that is BRK B on Saks.com it's up 106% over that period. Even with 2025 it going nowhere, it's still up 105 or 106%. The Voo, the S P 500 ETF is up 76% in that same period. Also very great returns. But Berkshire has been beating. But when you look back out over a year, because those shares have just kind of stalled out, they are underperforming now. Berkshire b is up 3.2% year over year. So this is through February 18th and the S&P 500 is up 12.4%. So considerable underperformance, but they're not negative. They're just kind of hanging out in there. And then year to date, not much has been going on. We know Buffett is done and so we're just waiting for Greg Abel to tell us what what is going on, to basically take over, put out his own shareholder letter and then we'll see where we go from there. But it's again, not cheap here, as I mentioned. So I've been staying on the sidelines, even though with the old economy back in. I do like a lot of their businesses right now and I do think they're going to be a great place to invest in the next two to five years and but I'm kind of hoping that we might get some businesses spun off of Berkshire Hathaway to unleash some of the value of their underlying old economy businesses. But that is probably several years down the road here. But year to date, Berkshire B shares are up 0.3% and the S&P 500 is up 0.6. So neither one is doing all that much. Berkshire can be a place to hide out when tech is imploding. So I feel like this could be what we're seeing with Berkshire this year so far, even though we have all the uncertainty with the new CEO and what's going to happen with the cash. And one of the lieutenants, Todd Combs, has left. He left in December to go to J.P. morgan. So we only have one lieutenant now and no, no Warren Buffett anymore managing that portfolio. So a lot of things up in the air. And we do know now that we've gotten the last trades while Buffett was CEO of Berkshire Hathaway and they sold some more Apple, they sold a big chunk of their Amazon shares, but that was always bought by one of the lieutenants. We never knew which one. But I'm thinking now that they got rid of, I think it was 77% of that holding, that maybe it was Todd Combs who had bought it. And then he basically was exiting most of the position when he, when he left. He wrapped it up basically, but we, we don't know. And then they did sell some more. Bank of America, which has been performing very well and so they are seeing some nice gains there. The stock was busting out to five year highs. There's no reason not to take some profits necessarily when you have a big winner like that. So they've been slowly whittling down bank of America and now, now we'll see what they're going to do with all this cash. So bank of America is down 4.7% year to date, but it's really over the last year where it was up 14.5 in the last year beating the S&P 500, which is up 12.4 as I mentioned earlier. So taking some profits again off of bank of America. They still have a big position in both Apple and Bank of America and now a very small one in Amazon. But these are things we're going to watch as we go along. But it is interesting that we didn't see a lot of other buying. They are apparently waiting for bigger pullbacks and a lot of the traditional value stocks to add to those positions. They did buy the New York Times a small position in the New York Times. They didn't buy it outright. Ticker nyt. And that's the newspaper which is interesting. It's kind of full circle for Berkshire Hathaway because it did own all of those newspapers out east, including in Buffalo and some of the smaller cities out east for decades until those were finally sold in 2020, I believe at the start of the pandemic. Buffett finally got out of all of that, even though he loved the newspapers because of their monopoly on classified ads and advertising, really. But the Internet has blown that up, as we've seen. And it's also had a big repercussions in news and where we get our news. So the newspapers have struggled, so that's why they got out of them. But somebody, somebody has bought a small, small position in New York Times. So we'll see how that works out. Over the last year, New York times is up 52%. And then year to date, it did get a little boost on the news that Berkshire had bought some. It's up 7.3% year to date. I've never really taken a look at New York Times in a long time. Last time I used to own it, it was in the 90s, I want to say, or early 2000s, because they always paid a pretty nice dividend for many years. And I thought, well, the New York Times isn't going to go away. And I got it cheap. But looking at it now, market cap is 12 billion. It still is paying a dividend. It's yielding 1%. So you get something, but it's not cheap. Kind of surprised they got in it, but we don't know when. In the fourth quarter they bought in. The shares have rallied in the last three months to new highs. Forward PE of 27, PEG ratio of 2.3. Earnings are expected to be up 11.8% in 2026 and 12.4% in 2027. Those are some nice numbers. But I would like to get it cheaper than this if I was going to be buying it. So I would not be looking at it here. Price to sales is at 4.3, price to book at 6. So I'm assuming a lieutenant bought this and because it's a small position. Okay, so should you buy BERKSHIRE Hathaway in 2026? That's the question I tried to pose for this podcast. And to me, we've looked at Berkshire every couple of months. We seem to look at it because it owns these very valuable businesses and it seems like this is the place I should want to be. And I like their big cash hoard, actually, but it's still just not cheap enough for me. And I'm waiting to see if we're going to get a bigger pullback, but we haven't gotten hardly any pullback even in the last year. It's kind of just sitting there going sideways. Nobody's panicked, nobody's selling out, but not a lot of people buying in, probably because it is pretty expensive here. So we'll see what happens in the fourth quarter report and what the outlook kind of looks like in the shareholder letter for the new year. But I'm going to stay on the sidelines a little bit longer on Berkshire Hathaway and see if a bigger market sell off maybe can get me in at a cheaper price. Also, if I get where my patience is running thin and I just really want to own some of the businesses that are in in Berkshire, the energy, the manufacturing, the railroad, I can do that separately and buy companies similar to what they own. So I could Buy Union Pacific, for instance, one of my favorite railroads. It's Ticker's UNP. It's trading with a forward PE of 21 right now. So it's not that cheap either. But I have seen these trade as high as 25 recently. Shares are kind of moving sideways for the last five years. It did hit a new high in early 2022, but we've had a transportation recession the last couple of years and that has played out in the shares, but no real huge sell off and the shares are actually rallying here in 2026. Someone else was thinking the same thing. I am like, hey, maybe I want to be in some transportation stocks. If we're going to see a turnaround in manufacturing and we're going to need to see a turnaround in things that are transporting everything that's manufactured. Earnings in 2026 expected to be up 6.9 and 2027 7.5. That's up from 5.1 in 2025. These big railroads grow at these smaller paces. So I'm fine with many mid, mid to upper single digit growth again if I can get it at the price I want to get it at. And it's a little pricey here. Now after this big rally, you do get a dividend yielding 2.1%. But this is a way to recreate what is in Buffett's portfolio. There's plenty of furniture companies. One of those that would be similar to what Warren Buffett owns is Haverty Furniture Ticker H V T H V T V as in Victor. It's a number four right now. Let me see if they've reported. No, we're waiting on this earnings, but they've been in business for forever, mostly in the southeast parts of the United States. I want to say like 100 years, 80 years, something like that. They've seen it all, they've survived and they very good balance sheet. But furniture is in a recession right now. It has been for several years. The Shares touched new five year lows in 2025. They have bounced off of those because people are anticipating, hey, maybe housing is going to be better and then furniture will follow. But we had some tariff impacts now and housing looks like it's not really going to rebound as much as we thought here in 2026. We might have to wait till 2027. So what is that going to do with the earnings with Haverty? Again, they are very well managed. They have been opening up new stores in anticipation of what's to come in the next couple of years because we will buy furniture again eventually. And they have again, very good balance sheet with the free cash flow. They're paying a dividend right now yielding 5%. So if you're looking around for income, this might be one to keep on your watch list as well. Forward p is just 12.5 with a PEG of 1:1 right now. So that's all cheap. 2025 earnings expected to be up just 0.9% after two years of earnings decline because things didn't really get worse in 2025, but they didn't get better. And then 2026, this is supposed to be the big turnaround. Earnings expected to jump up 80%. But will they? We'll see. I'm going to be tuning in on this one. It is a smaller furniture retailer that not as many people follow, but this is similar to the type of Omaha furniture retailer that Berkshire Hathaway owns. So again, you can recreate a lot of the companies that Berkshire owns, but I'd like to get it in just one stock. It's like an E.T. the old economy. Right. Berkshire Hathaway. So but I'm on the sidelines there, but maybe not on some of these others here. We're trading near a one year high on haverty going into this earnings report on the hope. This is the hope trade in housing and in furniture right now that 2026 will be the turnaround. But we'll see. So again, I could keep going down through many categories. There are auto dealerships you could be buying. I'm not sure what's going on with them right now, but autos very expensive. That's hard for the consumer right now. Also some tariff impacts. So we will see, we'll see with all of these companies what happens with these earnings reports and Greg Abel's very first shareholder letter. The pressure is on him here in February 2026, but he's been waiting a long time to now be CEO. So I'm sure it will be fine. So let me recap some of the stock tickers I talked about today. Of course there's Berkshire Hathaway, which I'm on the sidelines in for right now. Brk.b on Zachs.com Some of the others have a dash dash B. If you can afford the A shares, go for those. Those are BRK A if you're interested in those. Then we mentioned Apple, they sold some more of that AAPL and Amazon, which I own in my own personal portfolio. It is down off its highs, A M, Z and they sold a bunch of that bank of America they're selling some of that. B as in Boy as an Adam C and then Union Pacific. If you just want to own your own railroad, you can do it. U N is in Nancy P as in Paul Unp and then Haverty, the small regional furniture retailer Ticker H as in Harry, V as in Victor, T as in Tom. It's got a dividend of 5% there and they have paid that out for many, many years. So very good balance sheet there at Haverty and we'll see what's happening with furniture. But as always, you can tune in to get all the value stuff stocks that you want here on the Value Investor Podcast. We're bringing them to you every week. Be sure to subscribe. Get us on Zach's YouTube podcast channel. It's audio only over there, so you can just subscribe and listen in whenever you want to. All of our podcasts mostly are there, so be sure to check out YouTube. But of course we're on Apple, we're on Spotify 5. We're on anywhere you can get podcasts, so join us next time for some
- [22:47]
A
more value Stocks this material is being provided for informational purposes only and Nothing herein constitutes investment, legal, accounting or tax advice or a recommendation to buy, sell, or hold a security. Do not act or rely upon the information and advice given in this podcast without seeking the services of competent and professional legal, tax or accounting counsel. Publication and distribution of this podcast is not intended to create, and the information contained herein does not constitute an attorney client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities companies, sectors or markets identified and described were or will be profitable. All information is current as of the date herein and is subject to change without notice. Any views or opinions expressed may not reflect those of Zack's investment research as a whole.