Super Stock Blog

Posts Tagged ‘BRK-B’

As a buy-and-hold investor, the long-term rise of the stock market – and let’s face it, good stock picking — means that Warren Buffett isn’t under water on many of his major holdings, even after the grievous decline of shares since the financial collapse.

But among the handful of large positions somewhat submerged is Berkshire Hathaway’s (BRK.B)’s stake in U.S. Bancorp (USB), and it appears the Minneapolis-based banking concern’s management is working overtime to get Uncle Warren above water again.

For the record, Berkshire, as of the end of 2009, listed its stake of 76.6 million U.S. Bancorp shares at a cost of $2.37 billion, or about $31 a share, and today U.S. Bancorp is trading closer to $22.

After the big four of U.S. banks – Bank of America (BAC), JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC), all of which have assets of more than $1 trillion – there is a steep falloff to No. 5, U.S. Bancorp, with $281 billion in assets.

That’s actually a better size for a bank. The very biggest tend not to be the most efficient, becoming unwieldy in their massiveness, while banks in the next tier down tend to simply reap economies of scale.

The only of the four biggest banks with true cost-control credibility is Wells Fargo, home to a long line of maniacal bean counters. and U.S. Bancorp shares that legacy. two of its previous CEOS – Jack and Jerry Grundhofer; yes, brothers, and the former famous for his axe-wielding – were Wells Fargo veterans. (Buffett, of course, owns a lot more Wells Fargo than he does U.S. Bancorp.) and Richard Davis, the current CEO, was mentored by Jerry Grundhofer. These boys know how to tighten a screw. That’s important because banking is a low-growth industry, and expense control is crucial to pushing up profits.

Special Offer: Options guru Larry McMillan thrives on volatility and his readers profit. they just made 140% on Ivanhoe Mines (IVN) calls. Click here for updates on Jo-Ann Stores, Tivo and new options trade recommendations each morning: McMillan’s Daily Volume Alerts.

U.S. Bancorp came through the recent crisis better off than most. it didn’t report an annual loss, and it had kept enough powder dry to buy some failed banks on the cheap and then begin growing while others were still licking their wounds.

But U.S. Bancorp wasn’t entirely unscathed. its former set of financial goals – 20%-plus return on equity; 10% long-term growth in EPS; returning 80% of profit to shareholders via dividends and buybacks – have been scaled back. Truth is, the 80%-back-to-holders goal may have been a little nutty, given that bank capital accumulation is so important to surviving a downturn. The dividend cut following the crisis was thus jarring.

As you can see, CEO Davis and his board were indeed a little dividend-happy, maintaining a generous payout during 2008 ($1.70), which ended up being about 105% of earnings. Davis regularly remarks on how anxious he is to increase the current nickel quarterly payout, and with U.S. Bancorp’s capital rising there will be plenty of room to do so soon.

More capital means a higher book value, and so U.S. Bancorp mightn’t trade at its once-lofty multiple:

But, like most big banks, as soon as it works its way through its remaining bad loans, earnings should rise smartly.

The stock doesn’t look all that cheap.

But U.S. Bancorp has powerful market shares in many states, the sort of economic moats that Buffett seeks out. Davis, the CEO, is now seeking to grow, and one hopes he does so carefully. and should U.S. Bancorp make a big acquisition, Davis has the cost-control skills to make it pay. Chances seem good that Buffett won’t be losing money on this one.

Disclosure: No Positions

<a href="http://blogs.forbes.com/investor/2010/10/14/how-long-will-buffett-be-under-water-with-u-s-bancorp/?boxes=financechannelforbestag:news.google.com,2005:cluster=http://blogs.forbes.com/investor/2010/10/14/how-long-will-buffett-be-under-water-with-u-s-bancorp/?boxes=financechannelforbesThu, 14 Oct 2010 17:41:24 GMT 00:00″>How Long Will Buffett Be Under Water With U.S. Bancorp?

Last year I took the mini-van provided by Berkshire to the 2009 Berkshire Hathaway Meeting. I was staying in the middle of Omaha, NE. I thought I was running late when I left the hotel but the vans did not arrive yet and there was a bunch of people waiting outside. I ended up getting to the Qwest Center like 10 minutes before the meeting started. All the seats were taken and I had to stand for the first hour.

This year I rented a car and the goal was to get to the Qwest Center by 7:00 AM. I ended up getting there around 7:30 AM but there were still plenty of seats. I’d say it was at 60-70% full. I snagged a seat in the back of the arena in the top section. I figured most of the people that entered the arena would take the seats at the beginning. Apparently those seats are reserved for managers.

The setup is the same like last year. There are two seats for Warren Buffett and Charlie Munger. There are three big screens so we don’t have to squint our eyes on them the whole time. They talk from 9:30 AM – 3:30 PM and then have a half-hour business meeting. They added 2 more screens and more overflow rooms to manage the increase in stockholders.

This year’s meeting seemed more like a good basic approach to investing, answering the questions on Goldman Sach’s, and value investing. The meeting seemed very targetted to the new stockholders of Berkshire and showing them their philosophy to buying and holding companies with good fundamentals.

To sum up a few of the main points:
- China and India will continue to prosper and work hard to have the ‘American’ culture prosperity
- Berkshire Hathaway will not grow as fast as it has in the past. Reason is they are so huge in market cap now. However, they assured us they will always bring good shareholder value even when they pass on the company to other managers.
- Goldman Sachs was only an underwriter to the actual fraud charges that happened. They took contracts from banks that would insure the mortgage securities and took investors’ bets to short these CDOs. Here’s a good interview that explains it.

Warren Buffett has again given us his great knowledge into the future and all things beyond.  His 2009 statement provides his thoughts on the future of the United States, which is positive and his thoughts on the events that have occurred at Berkshire Hathaway for the past year.  He’s positive for the future of the US economy.  He even states that his company Clayton Homes will become more profitable.  His theory is that the amount of ‘housing starts’ has bottomed out.  He shows the amount of homes being built has decreased largely for the 2009 year.  This means the housing inventory is kept stable allowing for the foreclosed homes to be bought.  This stabilizes the housing prices and keeps current home owners from turning off their house.

Since the 50-to-1 split, Berkshire Hathaway has been making a sudden move up.  The price of the stock makes it an easy buy for index funds and mutual funds to add it in their profile.  As the stock improves, it will eventually move into the S&P 500.  This in turn will make S&P funds purchase more of it.  Hence you see the price moving up even with this bad economy.

I’ll be posting another article in the next day of a company that performs similarly to Berkshire Hathaway. They follow the same philosophy and are a pretty ‘unknown’ company to many. It should be a good investment opportunity for people that want a safe investment.