Buyback Skeptic
Not all investors want Berkshire to dive in and buy its own stock. Thomas Russo, who oversees about $14 billion at Gardner Russo & Gardner, including Berkshire shares, said he’d rather see Buffett wait for potential deals.
“He hasn’t built value by buying back stock,” Russo said. “He’s built value by daring, at moments when others didn’t, to buy businesses that he saw had a competitive advantage that would not erode over time.”
Berkshire’s businesses have been throwing off more cash, helped in part by a stronger U.S. economy. Operating profit surged 67 percent to $6.9 billion in the second quarter, driven by better results at the company’s insurers and gains at the railroad.
Underwriting profit at Geico was more than five times the amount during the same period a year earlier. The railroad, BNSF Railway Co., benefited from an accelerating economy, and also from increased demand due to tighter trucking capacity, which has been spurred by a shortage of drivers and more scrutiny on the hours they drive.
“It reminds everyone that Berkshire Hathaway is an all-in bet on the United States economy,” Smead said.
Removing the cap on prices for stock buybacks doesn’t mean Berkshire will stop hunting for acquisitions, according to Cathy Seifert, an analyst at CFRA Research. Still, if stock markets start falling, making Berkshire shares a more cost-effective option, the company could swoop in to repurchase stock.
“If we get later in the year and we have a correction, we may see them come in,” Seifert said.
This article was provided by Bloomberg News.