Below the book value of the Berkshire Hathaway fund
The highly-watched and widely-followed investment firm of Buffett and Munger recently bought Citigroup
This is the classic situation for value stocks and in one of Warren Buffett’s all-time favorite sectors: financials. The New York monster bank is available for purchase at a hefty 41% discount to its book value.
Maybe some investors are worried that the bank’s long-term debt will exceed equity, but highly educated folks in Omaha should understand that’s not really a big deal considering other factors.
Citigroup is trading with a price-earnings ratio of 6.32, well below that of the S&P 500 and low even for the financial sector in general. This year, earnings are up 114% and the EPS growth record of the last 5 years is stable at 16.40%.
The bank also pays a decent dividend: 3.80% yield.
The “entertainment” company is behind the new Tom Cruise movie hitting theaters now, a revival of the 1980s hit Top Gun. It is highly unlikely that Berkshire Hathaway bought shares in the company for this reason.
Paramount is trading at a 3% discount to its book value with an unusually low price-to-earnings ratio of just 5.96. The company’s earnings this year are up 77.50% and the EPS growth rate over the last 5 years is 13.80%. This is another situation where long-term debt is greater than shareholder value and again you have to understand that Buffet, Munger and his team concluded that it didn’t matter much considering everything .
The long-term view of the investment firm is undoubtedly a factor. The 9.48% float short indicates skepticism about Paramount’s outlook – if these shorts are ever forced to cover, it could fuel a whole rally. Investors receive a dividend of 2.83%.
Incidentally, these aren’t the only “below book value” stocks held by Berkshire Hathaway. These 2 are just the new additions in this category. Other discount-to-book stocks already in the portfolio include some of the oldest and best-known brands in business.
is here, now at 91% of the book, just like Kraft-Heinzreturning to a 7% discount to its book value after a recent selloff that took the price down from 44 to 36 before bouncing back a bit.
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No investment advice. For educational purposes only.