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Berkshire Hathaway Shares Down 5% As Barron's Says Sell, But Bulls See Buying Opportunity

Berkshire Hathaway shares closed down 4.6 percent today (Monday) at $136,400 after a cover story in Barron's over the weekend recommended, "Sell Buffett: Sorry, Warren, Your Stock's Too Pricey." That erased just over $7 billion in Berkshire's market value in one day. Buffett-Bulls, however, see a buying opportunity in today's decline.

The close was a bit better than the day's low, which was $134,050 in the late morning, a drop of 6.3 percent. Berkshire closed Friday at $143,000.

Current price:

The Barron's piece is now free content at the Barron's web site. (It had been behind a paid subscription wall this weekend and earlier today.)

While Barron's acknowledges Buffett and Berkshire have "dodged the mortgage and credit problems" afflicting so many financials and Buffett's "star has never been brighter," writer Andrew Bary concludes, "The Street's enthusiasm ... might be excessive."

Taking its cue from Buffett's own value-oriented way of looking at potential investments, Barron's says Berkshire "now appears overpriced, reflecting a sizable premium for the skills of the 77-year-old Buffett."

The magazine acknowledges it is very difficult to determine Berkshire's "intrinsic value - the discounted value of the cash flow from its businesses." But using a "generous" price-to-earnings ratio for its non-insurance businesses, Barron's estimates the company is now worth around $130,000 a share, 10 percent below Friday's close.

Barron's cites, with help from Credit Suisse analyst Charles Gates:

  • Buffett is now 77, his partner Charlie Munger, will be 84 on January first. Bary writes that Buffett is "likely to stay on the job for as long as possible, but in reality few CEOs can handle the demands of the job much past 80." Bary sees the stock falling when Buffett does leave the job as everyone waits to see if his successor can live up to the legend.
  • Lack of a clear succession plan. (Although Barron's seems to have a plan in mind, saying "our bet" is Berkshire's next CEO will be 51-year-old David Sokol, who now runs the Berkshire subsidiary Mid-American Energy.)

  • Difficulty finding the next big investment move. Berkshire has $39 billion in cash and Buffett has talked about a $10-billion-plus "elephant" buy, but public companies may not want to sell to him because he drives such a hard bargain. (But Barron's does speculate that insurance broker Marsh & McLennan might look good to Buffett, now that its stock price is half its 2004 high.)

Barron's says Berkshire stock will probably move higher over the next few years, but it predicts some financials, and even the S&P 500 stock index, will do better, "especially if Buffett's glorious tenure ends."

Barron's alternatives to Berkshire: American International Group , Wells Fargo and American Express . (Berkshire has substantial holdingsof Wells Fargo and American Express in its portfolio.

BUFFETT BULLS SEE MORE BERKSHIRE GAINS AHEAD

Well-known value investor Whitney Tilson, who has been a Berkshire shareholder for many years, thought the stock was a bargainas it approached $150,000 just days ago. He puts Berkshire's intrinsic value at $167,000, "in part because the most recent hurricane season was benign, holding down costs for Berkshire's insurance units." Presumably, Tilson sees it as even more of a bargain now that it's in the mid-130's.

Writing on GuruFocus.com, Geoff Gannon isn't as optimistic as Tilson, but he says Berkshire is "fairly valued" at around $141,000/share, even without Buffett's leadership. Gannon thinks Barron's is "being a bit too cautious in valuing Berkshire."

And on Seeking Alpha today, David Merkel defends Berkshireas "the ultimate anti-volatility asset" against the hurricane hitting the credit markets.

Questions? Comments? Email me at buffettwatch@cnbc.com

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