I was surprised to see two different opinions this week in Barrons on the stock market performance of Berkshire Hathaway (BRK-A). In separate articles, the bulls and bears both have their opinions of where the stock was going.
The bullish opinion was provided by T2 Partners Hedge Fund. T2 points out that the value of investments of Berkshire has climbled to $90,343 in 2007 from $52,507 in 2002.
In calculating future stock growth, T2 uses a formula to calculate intrinsic value. Intrinsic value is the investment value per share + 12 times earnings per share , excluding investment income.
While that is a mouthful, the formula shows that at the end of 2007, the intrinsic value of Berkshire to be between $156,300 and $158,700.
At those levels, Berkshire Hathaway stock price is roughly 20% undervalued. T2 projects forward that with a 10% increase in Intrinsic value this year plus a cash buildup of $6,000 over the next 12 months , that Berkshire could have an intrinsic value of about $178,000 per share at year end or a 40% premium over todays price.
Looking out two years, T2 projects that Berkshire could be worth over $200,000 a share!
The bear case is made by Douglass Kass, a hedge fund manager that focuses on short selling, or betting a stock will go lower.
Mr. Kass is currently short Berkshire stock because of Berkshire’s exposure to riskly financial derivatives. These derivatives cost Berkshire to take an unparelled $1.6 billion pretax loss in Q1.
Kass also points out that Berkshire has heavy exposure to the weak financial sector with large positions in Wells Fargo, Bank of America and American Express. In addition, Berkshire is exposed to the weak housing market through its large poistion in Clayton Homes
With the insurance market getting tougher, Kass sees tough times for Berkshire ahead.
So who is right, T2 or Douglass Kass? Is Berkshire heading to $100,000 a share or $200,000.
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