(Repeats to fix headline)
(To read other Reuters 'Buy or Sell' stories, double click
* Stock trading at price-to-book level below 5-yr average
* Shares up more than 40 pct from 52-week low on March 9
* Bull view: Stock still significantly undervalued
* Bear view: Planned stock-split a mistake, steer clear
By Lilla Zuill
NEW YORK, Nov 4 Billionaire Warren Buffett
surprised investors on Tuesday when he backtracked on a
long-standing aversion to splitting the stock of his company,
Berkshire Hathaway (BRKa.N) (BRKb.N).
In a letter to shareholders in 1983, Buffett said splitting
the stock could attract "inferior" investors, and had stuck to
that tune until now.
On Tuesday, the company announced plans for a 50-to-1 stock
split, to apply to Berkshire's "B" shares, and lowering the
price of the stock from $3,325.35 at Tuesday's close, to
roughly $67 a share, potentially opening the floodgates to new
The company's A shares, which closed at $100,450 apiece
on Tuesday, will not be subject to the stock split.
The split was announced in tandem with Berkshire reaching a
$36 billion deal to buy Burlington Northern BNI.N railroad.
Is this a good time to buy Berkshire stock, especially
given the lower post-split price of the "B" shares? Three
investment advisers weigh in:
STEVE CHECK, CHIEF INVESTMENT OFFICER OF CHECK CAPITAL
"I think the stock is quite cheap. It (A shares) should be
trading for around $125,000 a share. And it is a very low risk
time to get into the stock.
"Firstly, the ratio-to-book value is very cheap, and
secondly, book value is going to go up as investments he has
made recently pay off. And with Burlington Northern you are
taking a bunch of cash that is yielding 1 percent or less and
turning it into an immediate yield of 6 percent to 7 percent.
You don't have much risk of the numerator not moving up."
Check, calculates the stock, based on third-quarter
estimates, is valued at about 1.25 times book value versus an
average of 1.5 times book value over the past five years.
DENNIS GARTMAN, AUTHOR/PUBLISHER OF THE GARTMAN LETTER AND
HEDGE FUND FOUNDER:
"Mr. Buffett has always said he had no intention of
splitting the stock. Doing this is a serious weakness on
Berkshire's part. All a stock split does is entice weaker hands
into buying the shares.
"I would not consider this an opportunity to buy. I think
the decisions that have been done are not good decisions. He is
splitting the stock, and paying a premium for a railroad when
he has in the past always demanded a discount, and running his
cash position down. I don't see how you can see this as
anything other than detrimental to the share price."
"A wise investor who has a long-term position in that stock
would probably do well to reduce his exposure."
Gartman said the stock split would also likely increase
options activity in Berkshire's stock.
PAUL LOUNTZIS, PRESIDENT LOUNTZIS ASSET MANAGEMENT:
"I think the stock for Berkshire is clearly worth a lot
more than where it is at right now. I think it is worth
$140,000, $150,000 a share.
"The Burlington deal is a very good deal for everyone. BNI
shareholders are getting Berkshire stock that is under-valued,
access to Warren, and this incredible company with diverse
revenue (sources). And it is wonderful for Berkshire
shareholders, who are getting a good company where cash can be
put to work. It is a win-win all the way around."
"Clearly people are going to be surprised with the stock
split announcement. But clearly he (Buffett) thinks the
Burlington transaction is so attractive as to warrant it. And
he did not want to force the smaller holders of Burlington to
have to accept cash. This is unusual, but it is perfectly in
line with Warren being concerned that all shareholders have the
(Reporting by Lilla Zuill, editing by Leslie Gevirtz)