Value Investing Has anybody investigated the potentiality of buying shares in a medical facility (surgical center, heart center, etc.) |
| Posted: 30 Dec 2018 07:44 PM PST It seems a lot of private practice docs are creating additional income streams via investments in outpatient medical facilities. Do investment groups do the same? (or the private retail investor) [link] [comments]  | ||||||||||||||||||||||||||||||||||||||||||||||
| Berkshire Hathaway - P/B and P/E Metrics. When is it undervalued? Posted: 30 Dec 2018 06:45 AM PST This post is a discussion on how to estimate Berkshire's intrinsic value using simple metrics such as P/B and P/E. I started thinking about BRK's intrinsic value when I ran a screen of companies last week and saw that BRK was very close to the 1.2x book value that Buffett was authorized to repurchase shares at. I got excited when I saw that but then I read BRK's equity portfolio has taken a big hit the past couple of weeks during the bear market, making its true book value much lower. See below:
What a difference a couple of weeks makes. There has been a huge change between 3 months ago and today in BRK's book value and what BRK's valuation looks like in B share equivalents. Book value per share used to be a valuation metric that Buffett said is a good way to approximate intrinsic value. Now that BRK buys whole businesses, the 1.2x BVPS metric is not as helpful anymore and Buffett is authorized to repurchase shares whenever he believes them to be undervalued. Since BRK repurchased shares at an average price of 207 in the 3rd quarter of 2018, 1.3-1.4x may be the new P/B at which BRK is undervalued. Besides book value, another way I attempt to value BRK is by looking at normalized, comprehensive earnings with "look-through" earnings from owned equities. Here, I'll define comprehensive earnings as net income of BRK owned businesses like GEICO, BNSF, Mid-Atlantic Energy, etc, interest income from cash and bonds, "look-through" earnings from equities, and other earnings (derivatives). Normalized earnings remove accounting increases such as unrealized investment gains or tax benefits.
This suggests that as of the end of 2018, BRK has about 14.2 $ / share of comprehensive income. When Buffett repurchased shares, he did it at about 14x comprehensive earnings. One reason why I try to simplify BRK's earnings as much as possible is because BRK is composed of many operating businesses and it can be difficult to get in the weeds and try to value businesses separately. This rough analysis is the best I can do right now. What do future earnings growth look like for BRK? Two drivers of growth for BRK seem to be the increase of future earnings of currently owned businesses (equities and wholly-owned) and how Buffett can deploy nearly 100B in cash the next two years. I think it is conservative to assume 2-3% long term earnings growth rates for businesses BRK currently owns and 5-7% earnings yield on the additional capital Buffet deploys in the next 2-3 years. If Buffett is able to successfully deploy up to 60-100B in capital at the 5-7% earnings yield, BRK's growth can easily compound at 10% over the next couple of years. That would be a successful scenario but Buffett's new investments could also turn out less than stellar, yielding very low growth in earnings. Here is a table showing different valuation metrics and approximate prices at which BRK is undervalued:
I was surprised at the relatively high price Buffett has repurchased his shares but he is clearly pricing in high growth and successfully deployment of capital the next few years. I would say if you agree with Buffett, the current market price of 203 is a good price to enter BRK. If you want a higher margin of safety, a price between 170-175 would be more undervalued. With more market volatility in 2019 almost certain, it would also be wise to stagger purchases of BRK if it got to the 170 level. What are your thoughts? [link] [comments]  |
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