Monday, October 07, 2013

Investing in Warren Buffett and Berkshire Hathaway

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While some might not be familiar with the name of ‘Berkshire Hathaway (BRK.B)’ every investor has undoubtedly heard of the man at the helm of this company, Warren Buffett. The current CEO and Chairman, Buffett has guided Berkshire from a small textile company into the massive conglomerate it is today reports Zacks Investment Research.

Berkshire in Focus

Today, Berkshire Hathaway engages in a number of businesses, but has a focus on property and casualty insurance. The company uses the premiums from this business, before claims are paid out (called the ‘float’), to buy up investments in other industries.

While the firm does have a number of wholly-owned companies—including railroads, newspapers, and clothing companies just to name a few—it also has big holdings in several of the most easily recognizable American brands too. These include firms like American Express (AXP), the Coca-Cola Company (KO), and International Business Machines (IBM), although the list stretches far beyond this trio.

Either way, as primarily an insurance business that has had great success in its investment portfolio, the company is also benefiting from recent trends in the space. A wider spread between long and short term rates has certainly helped the company, while a booming stock market has also increased Berkshire’s value.

Earnings in Focus

Thanks to this trend, BRK.B is looking pretty good from an earnings estimate revisions picture. Analysts have recently bumped up their expectations for the company, including one increase in just the past seven days.

Now, the consensus full year earnings estimate for Berkshire is at $5.79/share, a modest increase from the $5.66 that was seen two months ago. Meanwhile, year-over-year growth looks to be just under 14% for the full year, a pretty solid figure for a company with a $280 billion market cap.

BRK.B also has a great track record when it comes to earnings dates too. The company has beaten in each of the last four quarters, including three double digit surprises in the last four releases, so increased expectations should be no problem for this company.

And if that wasn’t enough, investors should note that the Zacks Industry Rank for the Insurance Property & Casualty space is quite favorable. The current rank for this segment is 36 out of 260, suggesting that there are few sectors that are better positioned than insurance at this time.

Due to these factors, Berkshire Hathaway has earned itself a Zacks Rank #1 (Strong Buy). This means that we are looking for the stock to outperform its peers, and continue to post solid gains in the weeks ahead.

Bottom Line

Insurance is a great business to be in right now as there are several positive trends in this space. Not only is a bigger spread helping this segment, but a solid stock market is also assisting the sector as well.

This makes an investment in a top Ranked insurance company a very intriguing idea, especially if these current trends continue. And considering that Berkshire is world-class and is seeing solid earnings estimate revisions, this company could definitely be the way to play the trend in the near-term.

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