Investing Warren Buffett Watch

  Thursday, 20 Jul 2017 | 4:59 AM ET

Warren Buffett-target Unilever reports first-half improvement after failed Kraft bid

Posted By Reuters with CNBC.com

Unilever lifted its full-year margin target on Thursday after seeing a big improvement in the first half, underlying its ability to boost returns as an independent firm after rebuffing a $143 billion takeover bid from Kraft Heinz earlier this year.

The Anglo-Dutch conglomerate, whose products range from Hellmann's mayonnaise to Dove soap, said it expected underlying operating margin to grow by at least 100 basis points this year. Its previous target was at least 80 basis points.

The company's profit margins became an area of investor scrutiny in February when U.S. food giant Kraft Heinz failed in its attempt to take over Unilever for $143 billion. The bid had received backing from two major investors in Kraft Heinz, private equity firm 3G Capital and Warren Buffett's Berkshire Hathaway.

Polman has since said he had not been impressed with the Kraft Heinz offer and told CNBC in May that the company was doing just fine on its own.

"What the investor community is telling us is that they see the positive effects of (our strategy) and it gives them the confidence to stay in the stock or even enter more into our stock," CEO Paul Polman told CNBC on Thursday.

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  Wednesday, 19 Jul 2017 | 12:53 PM ET

Leading analyst says IBM stock could fall 18% and Watson won't save the day

IBM's stock is poised to fall 18 percent and the company's AI supercomputer, Watson, won't move the needle, Jefferies' James Kisner told CNBC on Wednesday.

The iconic technology company's stock fell Tuesday after it reported revenue was down year over year for the 21st-straight quarter, off by more than 4 percent. The stock was down about 3.5 percent premarket Wednesday, trading below $149 a share.

"The company missed some opportunities. If they had acquired Salesforce years ago, that might have been something they could do," Kisner said on "Squawk Box."

Kisner has an underperform rating on the stock and a 2018 price target of $125. That would be an 18 percent decline from Tuesday's closing price of $154 a share.

In response, an IBM spokesperson said: " Watson is the world's leading AI platform for business. No other company has the scope of enterprise AI engagements as IBM, from 50 hospital systems around the world deploying Watson for Oncology, to companies such as H&R Block, GM and Credit Mutuel leveraging Watson to transform their customer experience."

IBM has struggled over the past five years to grow revenues as it transitions from traditional business tools, like mainframes, to new fields like artificial intelligence, cybersecurity and cloud.

On Tuesday, Martin Schroeter, IBM's senior vice president and chief financial officer, told CNBC the company is always looking for "profit pools" in enterprise technology.

Billionaire investor Warren Buffett and others who like the stock have praised IBM's cognitive intelligence, Watson, as a valuable experiment.

But Kisner said the supercomputer won't "move the needle."

"The whole cognitive software market for artificial intelligence was $1.5 billion last year. As we spoke to a lot of industry contacts and customers, and competitors, they all had the same sort of comment: IBM is an expensive solution," he argued.

--CNBC's Anita Balakrishnan contributed to this report.

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  Tuesday, 18 Jul 2017 | 2:56 PM ET

How a billionaire hedge fund manager plans to transform the biggest American power producer without getting burned

Billionaire hedge fund manager Paul Singer and fellow activist investor Charles John Wilder have their work cut out for them with their latest gamble: overhauling a major player in the utility space, a sector that has humbled some of the world's savviest investors in recent years.

The two are behind a plan to transform NRG Energy, the nation's largest independent power producer, from a sprawling giant with significant clean energy holdings to a smaller and simpler generator and seller of electricity.

If they succeed, they will at least create a more valuable company for shareholders. But they also stand to reshape the competitive landscape through major acquisitions and score a win in an industry that has confounded the likes of Goldman Sachs and Warren Buffett.

Analysts say the surge in NRG's share price last week reflects investors' confidence in Wilder, 59, who won a board seat in February after partnering with Singer, 72, to push for change. Now the head of energy investment firm Bluescape Energy Partners, Wilder made his name by turning around Texas power company TXU before selling it in the largest ever leveraged buyout in 2007.

Singer's Elliott Management owns a nearly 6 percent stake in NRG, while Bluescape owns about 2.8 percent, according to FactSet.

NRG Energy 10-year stock performance

At NRG, Wilder and CEO Mauricio Gutierrez aim to shrink the business after shareholders rebelled against an aggressive expansion into renewable power and sustainable energy spearheaded by former chief executive David Crane over the last decade.

The company will try to generate about $1 billion in cost savings, while seeking to sell off all or part of its renewable energy business, as well as a portion of its conventional energy portfolio. That will reduce NRG's debt load, largely tied to renewable projects, and generate up to $6.3 billion to invest in higher-yielding businesses or fund shareholder payouts, the company said.

NRG has not disclosed which power plants will remain in its portfolio once the transformation plan is complete, but analysts say even its best coal, natural gas and nuclear facilities, many located in Texas, face a challenging environment.

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  Tuesday, 18 Jul 2017 | 3:24 AM ET

Watch out, Tesla: This Warren Buffett-backed Chinese electric vehicle maker plans US expansion

When President Donald Trump pushed "Made in America" week starting on Monday, Chinese electric vehicle maker BYD might not have been top of mind.

But the Warren Buffett-backed company has its sights set on expanding in the U.S. market with its Lancaster, California, production facility set for completion next month, Stella Li, president of BYD Motors, told CNBC's "Squawk Box" on Tuesday.

The facility, which employs around 700 people, will be able to annually produce 1,500 electric heavy-duty vehicles, such as municipal buses.

Li said BYD was also expanding into new product lines, such as electric refuse trucks and forklifts.

All in, BYD has already given better-known rival Tesla a run for its money: Tesla sold around 76,000 vehicles in 2016, while BYD clocked in more than 100,000 units in sales.

Li said that BYD's U.S. customer base wasn't just confined to green-focused California — the city of Denver is among its biggest customers.

"Our customer [base] is expanding into multiple [arenas] from public transit bus to the private one," she said, noting her company had orders from Facebook, Stanford University and the University of California, San Francisco.

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  Monday, 17 Jul 2017 | 8:04 AM ET

Warren Buffett's 10 commandments on using power to maintain success

Posted By Lawrence Cunningham, professor at George Washington University

At a symposium I hosted two decades ago featuring Warren Buffett and his annual shareholder letters, the legendary investor joked that his service on 17 public company boards revealed a "dominant masochistic gene." Buffett has since served on several more boards, interacting with some 300 members during his illustrious half-century career.

The Berkshire Hathaway chairman and CEO has devoted parts of his letters to describing what the best directors do. A condensed version of these points follows. Living by these "10 commandments," as I call them, has made him excel in the boardroom.

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  Friday, 14 Jul 2017 | 3:18 PM ET

Sprint rallies after report executives have engaged Buffett and Malone about investments

Posted ByEvelyn Cheng

Shares of Sprint spiked 5 percent Friday after The Wall Street Journal, citing sources, said the telecommunications company met with Warren Buffett and media business giant John Malone about an investment.

Sprint Chairman Masayoshi Son met separately with Buffett and Malone, chairman of Liberty Media, this week during a gathering of chief executive officers in Sun Valley, Idaho, the report said, citing sources.

Although the talks are in early stages, the sources said, one estimate said Berkshire would put more than $10 billion into a deal.

Separately on Friday, Bloomberg reported that Buffett is mulling a $10 billion to $20 billion investment in Sprint. The talk comes just days after Berkshire offered $9 billion to buy electricity transmission company Oncor.

Sprint intraday performance

Source: FactSet

In late June, CNBC confirmed that Sprint is in exclusive talks with Charter Communications and Comcast for a potential deal that will allow the cable companies to offer wireless services on the carrier's network. Sprint in May was reportedly in talks with T-Mobile for a merger.

Sprint declined to comment to CNBC on Friday. Liberty Media did not immediately respond to a CNBC request for comment. Comcast had no comment.

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  Wednesday, 12 Jul 2017 | 3:15 PM ET

Hedge fund titan Paul Singer scores big win after NRG Energy surges 25% in single day

Paul Singer
David A. Grogan | CNBC
Paul Singer

Activist investor Paul Singer's bid to overhaul power producer NRG Energy paid off handsomely on Wednesday as investors sent the stock price soaring.

Shares of NRG surged about 25 percent to about $20.45 after the company announced a transformation plan that, if successful, would reduce its debt load and free up billions of dollars for strategic purchases and shareholder payouts.

Singer, the hedge fund titan behind Elliott Management, revealed his stake in NRG in January, along with plans to push for strategic and operational changes aimed at increasing value for shareholders. He partnered with Bluescape Energy, an investment firm chaired by utility industry heavyweight Charles John Wilder Jr., to build a position big enough to lobby for change.

Elliott secured a spot for Wilder and former Texas Public Utility Commission chairman Barry T. Smitherman on NRG's board in February, and the two were involved in a four-month review of the company's business.

NRG Energy one-year performance

The result of the review is a plan to raise $2.5 to $4 billion by divesting 50 to 100 percent of its NRG Yield renewable energy business and some of its conventional energy assets, which includes coal and natural gas plants. NRG also aims to remove $13 billion in debt from its balance sheet and generate $855 million in annual free cash flow.

If the plan is 100 percent successful, it will generate $6.3 billion in cash through 2020, which NRG expects to spend on projects or investments.

That is a tall order, but investors have faith in Wilder, the former CEO and chief executive of Texas electric utility TXU Corporation. Wilder turned around TXU and positioned it for a successful 2007 sale, said Neel Mitra, director of power and utilities at Tudor Pickering Holt.

"They have some very aggressive cost cuts, and the reason as to why people are buying into them is this business review committee was run by John Wilder, who is pretty much regarded as one of the most powerful and successful names in the power industry," he told CNBC.

"His name behind that committee is adding some credibility to some pretty large numbers," said Mitra, who advised buying the stock at current levels.

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  Wednesday, 12 Jul 2017 | 10:16 AM ET

Warren Buffett uses this simple psychological trick to be persuasive and so can you, says expert

Warren Buffett is perhaps the most famous and most successful investor alive today. Dubbed the "Oracle of Omaha," the 86-year-old CEO of Berkshire Hathaway has a net worth of more than $75 billion.

Most people excitedly await Buffett's annual letter to Berkshire shareholders for the sage advice he gives. But psychology professor Bob Cialdini, who has spent his entire career studying the science of influence and persuasion, is drawn to something more subtle.

"I've been getting his annual shareholder reports for more than 15 years now. And I've noticed something that he does as a CEO of the company Berkshire Hathaway that I've never seen in any other report," says Cialdini of Buffett.

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  Tuesday, 11 Jul 2017 | 3:24 PM ET

Once-slumping airline stocks are now a top pick for one analyst

Airline stocks are among the best picks in the market right now, according to a new note from Ari Wald, head of technical analysis at Oppenheimer.

As the Dow Jones transportation average hits new highs and airline stocks break out of yearslong technical resistance, Wald said such bullish activity reaffirms "the 'Dow Theory' buy signal that's been in place since last November."

According to one facet of the Dow Theory, rallying transportation (historically, rails) stocks point to further upside for the broader market given the wide range of goods carried by transports.

Within the transport group, Wald is particularly bullish on airline stocks, the largest of which include American Airlines, Southwest Airlines and Delta Air Lines, which have advanced 11 percent, 25 percent and 11 percent year to date, respectively.

Specifically, Wald noted that shares of Delta appear to be breaking out of "very important resistance" at the $53 mark; the carrier was trading at around $54 per share on Tuesday.

Overall, the industry is moving through some very important decadeslong resistance levels "and still a far cry from where it was in the late '90s, so still a significant underperformer over that 20-plus year period," he said Monday on CNBC's "Trading Nation." Furthermore, the group is trading at a relatively low multiple, Wald pointed out, and deemed it a good value combined with signs of healthy momentum.

When it comes to earnings, the skies might not look quite as clear.

The airline industry is the only group within transports expected to post contracting earnings, according to S&P Global estimates. Very few categories across the entire S&P 500 are projected to have lower year-over-year earnings. On the bright side, expected losses are indeed anticipated to abate, said S&P Global portfolio manager Erin Gibbs. Initially S&P Global was forecasting a 9 percent decline for the airlines; that estimate has been revised up to a 4 percent decline.

"The year is definitely looking better; maybe they'll even make the same amount of money by the time we finish the year if things keep improving and oil stays low," Gibbs said, adding that she prefers U.S. airlines to some of the international carriers.

"They are trading low, relative to their historical price range, but we still see limited upside target prices, with only about an average of 8 percent above; so again I'd like to recommend investors be very picky about airlines, particularly those large-cap U.S. airlines are some of our favorites," she said Monday on "Trading Nation."

A filing in May revealed that influential investor Warren Buffett's conglomerate Berkshire Hathaway owned millions of shares of American Airlines, United Continental and Southwest Airlines. In June, it was disclosed in a filing with the Securities and Exchange Commission that the holdings had massively paid off.

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  Monday, 10 Jul 2017 | 2:24 PM ET

Analyst sees 75 percent chance Kraft Heinz will revisit Unilever with hostile bid

Posted ByJeff Daniels

Kraft Heinz isn't finished with Unilever and could come back with a sweetened bid of around $200 billion for the Anglo-Dutch consumer goods conglomerate, according to a report.

"We are now coming around to the view that a hostile bid for [Unilever] is more than 75 percent likely," said Susquehanna analyst Pablo Zuanic in a research note Sunday.

In February, U.S. food giant Kraft Heinz failed in its attempt to take over Unilever for $143 billion in a deal that was backed by two major investors in Kraft Heinz, private equity firm 3G Capital and Warren Buffett's Berkshire Hathaway.

Zuanic estimates a new deal, however, would bring the takeover price "close to $200 billion."

Even with a higher bid, he said a merger "remains a 'good fit' as with it KHC expands in food and builds an HPC [or home and personal care] platform."

Unilever's personal care brands include Dove, Vaseline and Pond's, among others. Kraft Heinz's major brands include Oscar Mayer, Grey Poupon, as well as its famous ketchup.

"By mid-August, the six-month hiatus required by British takeover law will have passed, and KHC could proceed to make a hostile bid for Unilever," said the Susquehanna analyst.

Kraft Heinz and Unilever declined to comment.

"We think it is telling KHC has done nothing (M&A wise) for the past five months," he said.

At the same time, Zuanic explained that a "rebuff/defeat is not something 3G/KHC can tolerate if they plan to continue to roll-up the [consumer packaged goods] space."

Unilever's U.S.-traded stock is up 34 percent so far this year and is also higher since the original proposal was rejected. Shares of Kraft Heinz are down almost 5 percent this year, while the broadly based S&P 500 Index is up more than 8 percent.

"We doubt anything less than a 20 percent premium could entice Unilever shareholders (assuming KHC goes hostile)," said Zuanic.

At around $200 billion, the analyst said the deal would be "25-35 percent equity funded" and adds that it could include "a mix of $10-$12 billion equity investments each by 3G and Berkshire." Moreover, he believes asset sales from the combined company also might make a revised deal more palatable.

In particular, Zuanic said asset sales could generate between $25 billion and $35 billion. He said they could include everything from selling Unilever's ice cream or cosmetics business to unloading Kraft Heinz's frozen foods, coffee or Oscar Mayer businesses.

After the Unilever deal failed, Buffett was asked on CNBC's "Squawk Box" about what happened and said the offer was not intended to be a "hostile offer," but "may have been interpreted that way."

Zuanic said "the impediment" for a deal to happen is not regulatory in nature but billionaire Buffett's preference "to go where he is welcome" and not do hostile bids. Then again, the analyst believes Buffett "will come around."

Regardless, Unilever's CEO Paul Polman told "Mad Money" host Jim Cramer in May that the company was doing just fine on its own and he wasn't impressed by the Kraft Heinz offer.

"In the end, our strategy...in investing is Warren's strategy," Polman said. "And my returns have been higher in the last eight years than Warren's returns. So I think it's better if he leaves us with what we know how to do well."

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About Buffett Watch

  • Warren Buffett is arguably America’s most-admired and most-followed investor. Buffett is the largest shareholder and CEO of Berkshire Hathaway and one of the world’s most famous and most generous philanthropists. Legions of investors - from all walks of life - follow Buffett's homespun investment philosophy: invest in what you know, invest in value. Here on CNBC.com's Warren Buffett Watch, we’ll keep you up to date on what the “Oracle of Omaha” is doing by following Buffett's trades, words and deeds.