The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.
I'm going to Peyton Manning's favorite city this weekend. Omaha! Omaha!
Yup. Heading to the Berkshire Hathaway shareholder meeting. It should be a fun trip. And I expect to meet a lot of happy Warren Buffett fans. Happier than usual in fact.
Perhaps Buffett will serenade the throngs of Berkshire faithful with a ukulele solo or two? He's been known to bust out every hipster's favorite musical instrument. Dare I dream for a Mumford & Sons appearance? But I digress.
Buffett could sing "Happy Days Are Here Again" to celebrate the stock's resurgence this year. There have been some who've begun to question if Buffett lost his magic touch. The stock did lag the S&P 500 last year. And the increase in Berkshire's book value over the past five years was not as great as the S&P 500's gain.
But many of the Oracle's key investments are off to a nice start in 2014. Berkshire's biggest stock holding, Wells Fargo (WFC), is beating the market by a wide margin. The bank's stock is up nearly 10%. Other top Berkshire picks, such as IBM (IBM), DirecTV (DTV) and Phillips 66 (PSX), have done well too.
There's also good reason to believe that Berkshire's earnings will be pretty strong.
Sure, many investors pay more attention to Berkshire's portfolio of stocks. But this is a company that owns giants of American industry ranging from insurers Geico and General Re to consumer staples companies Heinz and Fruit of the Loom as well as railroad Burlington Northern Santa Fe.
Berkshire's first quarter results are likely to be released Friday afternoon just as the shareholder festivities are beginning. And when you look at how well some competitors of various Berkshire subsidiaries are doing, that should be a good sign for Berkshire.
Shares of Allstate (ALL), Union Pacific (UNP) and HanesBrands (HBI) have all outpaced the market this year thanks in part to strong earnings reports and expectations of healthy growth for the full year. (I actually prefer Hanes over Fruit of the Loom though. TMI? I probably shouldn't advertise that in BuffettVille.)
So the Berkshire movie that gets shown at the beginning of every shareholder meeting is likely to be more lighthearted comedy than tear-jerking melodrama this year. With that in mind, will you permit me another pop culture tangent? Okay. Thanks.
I've heard that the Berkshire movies are often pretty cute and typically feature celebrities. Arnold Schwarzenegger has been known to pop up in them. So I am making this prediction about the movie. If I'm right, you read it here first. If I'm wrong, it's a wasted opportunity for Berkshire.
Buffett is known to be a fan of the TV show "Breaking Bad." He even tweeted a photo of himself as Walter White alter ego Heisenberg on the day of the series finale. And Walter White himself, series star Brian Cranston, was in the video last year.
Without spoiling too much for those of you have not seen the show (and if you haven't, stop reading this column and go start watching on Netflix right now!) I am betting/hoping that Bob Odenkirk shows up playing Saul Goodman as a manager of a Cinnabon in Omaha in the movie. Maybe Buffett can come in and offer Saul a better job at a Berkshire-owned Dairy Queen? Or as Berkshire's new general counsel?
Digression over. Now for some bad news. The Berkshire renaissance may be already priced into the company's stock. If you believe in value investing ... and we know that Buffett and his acolytes do ... then this may not be the best stock to buy right now.
Berkshire's B shares currently trade at about 20 times 2014 earnings estimates. That's a fairly sizable premium to the S&P 500's P/E ratio of 16 and may also seem a bit rich for a company that analysts think will only grow earnings at about a 9% clip annually for the next few years.
There's also the fact that investors usually assign discounts to conglomerates. The logic is that a pure play company is easier to understand and warrants a higher valuation than a company that's sort of a hodgepodge of different businesses. Just look at General Electric (GE). It trades at 15 times earnings forecasts for this year.
So Berkshire investors deserve to be in a celebratory mood this weekend. But they should be cautiously optimistic about the future.
Reader Comment of the Week! The biggest business story this week came from the world of sports: the lifetime suspension of LA Clippers owner Donald Sterling. One reader was lamenting the fact that Sterling wasn't a publicly traded asset like football star Vernon Davis now is on the Fantex exchange. But this reader wins points for wanting to bet against Sterling.
Well-played. Even though Sterling will likely make a killing on the Clips if/when he is forced to sell, his reputation is worth less than a bankrupt penny stock.