The Next Stock I'll Be Buying
Jan 12th 2012 1:35PM
Updated Jan 12th 2012 1:36PM
In addition to my goal of avoiding credit cards this year, I will be doing one other thing to help strengthen my financial future. Fellow Fool John Reeves recently talked about his need to shore up his retirement account and the college funds for his children. Though I don't have children, my retirement account could use some love this year and beyond. I've decided to follow John's lead and focus on ramping up my savings level, but I will also be building a portfolio of individual stocks in order to maximize my future returns.
To start, I will only look to add three or four companies to my portfolio, and like many investors, I have a small watchlist with a couple dozen companies that I have been watching for a few months. Now that the time has come to start building my portfolio, I have begun to narrow down my choices. With that in mind, the first investment that I will be making is in the stock of megaconglomerate Berkshire Hathaway (NYS: BRK.B) . There are potentially many reasons to like Berkshire, but there are three primary reasons why I like it for my portfolio.
No. 1: Warren Buffett!
When he's not asking for higher taxes, Warren Buffett is a pretty savvy investor. Last year alone, he made a sweetheart deal to help out Bank of America, invested in technology for the first time ever, and even purchased his hometown paper. While the Bank of America deal has yet to fully pay off, and the newspaper deal is only a few weeks old, his investments in IBM and Intel look to match many previous successful buys.
By purchasing shares in Berkshire Hathaway, you not only get exposure to many of the wholly owned companies in Berkshire's possession, but you also benefit from the performance of the company's stock portfolio, with many positions picked by Buffett himself. Since the average investor cannot afford to invest in so many companies individually, an investment in Berkshire is like an investment in a no-load mutual fund.
No. 2: It's cheap!
Even though the stock trailed the S&P 500 this year, Berkshire is cheaper than it has been in a long time. Buffett himself is bullish on the company, with Berkshire's board authorizing a share repurchase for the first time ever. The company has recovered slightly from its low price over the summer, but it is still trading at only a 20% premium over book value.
Typically, I like the companies I invest in to pay dividends. Berkshire doesn't pay a dividend, but the recent decision to repurchase shares can ultimately serve the same purpose for investors. I also trust Buffett or his hand-selected investment managers to use Berkshire's money efficiently.
No. 3: Housing will come back!
Berkshire is known primarily as an insurance company due to its ownership of GEICO, Wesco Financial, and other insurers and reinsurers. But Berkshire's holdings are also spread among sectors beyond insurance. One is materials and construction; Berkshire owns Acme Brick, Benjamin Moore Paints, carpet manufacturer Shaw Industries, manufactured housing maker Clayton Homes, and other smaller companies that provide goods for the construction of homes. If housing finally begins to recover, these companies could help improve Berkshire's bottom line.
Taking a closer look at Berkshire's investment portfolio, there are a few holdings that could also benefit from a return to normalcy in the housing market. Banks Wells Fargo (NYS: WFC) and US Bancorp (NYS: USB) could see increased mortgage business if the market begins to normalize. Berkshire's holdings in both companies make up nearly 12% of its investment portfolio. Even its small holding in Home Depot could see some benefit from a housing recovery.
Buying it soon...
Due to trading rules here at the Fool, I won't be able to purchase my shares of Berkshire Hathaway for a few days. Within the week, however, I will be adding a few shares of Berkshire Hathaway to my portfolio. It won't be the last stock that I add to my portfolio, but I think that it is a perfect stock with which to start. In the meantime, you can join me in keeping an eye on Berkshire Hathaway by adding it to your free My Watchlist today.
At the time this article was published Fool contributor Robert Eberhard holds no position in any company mentioned. Follow him on Twitter @GuruEbby. The Motley Fool owns shares of Intel, Berkshire Hathaway, IBM, Wells Fargo, and Bank of America; has bought calls on Intel; and has created a covered strangle position on Wells Fargo. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway, Intel, and Home Depot, along with creating a bull call spread position in Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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