Berkshire Hathaway Defends 5 "Undervalued" Labels on Stocks

Brittney Barrett  |

Warren Buffett's company, Berkshire Hathaway, declared five of the stocks it holds in its portfolio undervalued in a discussion with regulators.  The stocks were Wells Fargo & Co., Kraft Foods Inc., Sanofi-ntis, Swiss Re and US Bancorp. The company was quick to come to bat for its statements, releasing filed copies of correspondence between Berkshire Hathaway Inc. and the Securities and Exchange Commission exchanged over the last several months. Additionally, after regulators inquired as to whether Berkshire should write down the value of the above investments since the prices have declined and stayed deflated since they were purchased, they assured regulators that they would rebound and had no plans to sell any of the stocks until their prices recover.

Regulators had questioned whether Berkshire should write down the value of those investments because their stock prices had fallen since Buffett's company first bought the shares and remained below Berkshire's cost for more than a year. Berkshire resisted because company officials believe all five stocks will rebound stating that Berkshire has no immediate plans to sell them at the current lower prices.

Eventually Berkshire conceded to record an impairment of the value of its holdings in pharmaceuticals maker, Sanofi Aventis, US Bancorp and the reinsurance firm Swiss Re as part of a writedown totaling $938 million recorded on its $61.5 billion stock portfolio in the fourth quarter.

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One instance of the price disparity that disturbed regulators is demonstrated by the stock of US Bancorp. Berkshire purchase its stake in US Bankcorp for $2.4 billion, it was worth $2.1 billion at the close of 2010 when the stock was selling for $24.84. Today, the stock price was $26.90.

Berkshire didn't write down the values of all the companies; however. Wells Fargo and Kraft were exluded despite an unrealized loss of about $384 million in 2010 on a portion of the company’s 359 million Wells Fargo shares. The company endured an unrealized loss of roughly $150 million on its 97 million shares of Kraft last year.

Berkshire expressed no interest in writing down Well Fargo holdings on the notion that the loss only applied to around 30 percent of its total stake in Wells Fargo. The remainder of the sotkc had an unrealized 3.5 billion gain.

The company is confident that each of the five stocks have been trading below their actually value and their market prices will rise over the next year to reflect that. They offered reasoning for each of the companies, citing Kraft’s food brand prominence, and the strengthened franchises at Wells Fargo, Swiss Re and US Bancorp. Sanofi’s solid drug franchise and recently improved earnings were offered as an explanation for the undervalued title.


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