Video Reports

Embed this video

Copy Code

Link to this video

Get LinkEmbedLicenseRecommend (-)Print
Bookmark and Share

By Jason Stipp and Jeremy Glaser | 05-31-2013 06:00 AM

The Friday Five

Five stats from the market and the stories behind them. This week: Berkshire's buy, a boost for Costco, and more.

Jason Stipp: I'm Jason Stipp for Morningstar, and welcome to The Friday Five: five stats from the market and the stories behind them.

Joining me, as always, with The Friday Five is Morningstar markets editor Jeremy Glaser.

Jeremy, thanks for being here.

Jeremy Glaser: You're welcome, Jason.

Stipp: What do you have for The Friday Five this week?

Glaser: Well, we'll look at the numbers $49.1 billion, $4.7 billion, 4, 5, and 7%.

Stipp: $49.1 billion refers to the amount of cash on Berkshire Hathaway's balance sheet at the end of the first quarter. They're putting some of that money to work, in news we found out this week.

Glaser: They are. Berkshire announced that its unit MidAmerican Energy will be buying NV Energy, which is a regulated utility in Nevada. I think this is a good example of something that we talked about at the Berkshire meeting, and Buffett talked about, [which is] this idea of paying up for quality. Instead of being focused on finding the absolute cheapest company, the cheapest securities you can find, Warren Buffett is willing to pay a little bit more if he thinks that it's a well-run company, if he thinks it's going to have good prospects in the future, if it's going to work well with some of his other units. And I think that's what's happening here.

They're paying a fairly rich valuation, both a premium to our intrinsic value of NV Energy, and also to what it was trading at in the marketplace beforehand. In return, they're getting a narrow-moat business, one that our utilities analysts think is pretty well-run, and also one that's going to have a lot of opportunities to soak up capital and to have other capital-intensive projects in the coming years. And that's something Warren Buffett is really looking for. They're sitting on all this cash. They don't necessarily have a ton of uses for it, and it's earning 0% right now. Putting it into some of these businesses, even if it's not … going to be an incredible return, it's generally still better than where they were before, and Buffett is willing to pay up a little bit in order to get a deal like this done.

Read Full Transcript

{1}
{1}
{2}
{0}-{1} of {2} Comments
{0}-{1} of {2} Comment
{1}
{5}
  • This post has been reported.
  • Comment removed for violation of Terms of Use ({0})
    Please create a username to comment on this article
    Username: