Buffett Watch

  Thursday, 15 Nov 2018 | 11:36 AM ET

Warren Buffett's two-question process for figuring out if the stock market is overvalued

Everyone is concerned about an overvalued stock market. And they should be. You don't reach a full decade of a bull run without asking the reasonable question about stock values. A simple explanation that Warren Buffett once gave for knowing when the market is overvalued doesn't present a full-throated endorsement of market bargains being plentiful right now.

The Berkshire Hathaway chairman and billionaire investor told attendees at the Berkshire annual conference back in May 1998, only a few months before stocks plummeted, that the easiest way to gain confidence that the market is not overvalued is if two conditions are met: "Interest rates remain at or near present levels or go lower, and that corporate profitability in the U.S. stay at the present — or close to the present — levels," which at the time Buffett was speaking were "virtually unprecedented."

"If the two conditions are met," he said, "I think it's not overvalued. And if either of the conditions is breached in an important way, I think it will turn out to be overvalued."

The comments were actually a reinforcement of what Buffett had written in his annual letter to shareholders the year before.

Anyone who follows the markets knows there are widespread concerns right now that stocks are at peak earnings power. Meanwhile, the Federal Reserve is raising interest rates, and it is not only President Donald Trump blaming it for the recent stock market woes, hedge fund giant Ray Dalio said on Thursday that the Fed is causing asset prices to go down.

It would seem that there is good reason to be reminded of Buffett's words about interest rates. In the late '90s, Buffett also provided a rare presentation at the Allen & Co. conference for industry moguls, in which he said that when interest rates are low, companies get too much easy money and there is no place for investors that makes sense but stocks. Ultimately, the problems will surface and no longer support a rising market. Some of today's tech giants would have been good long-term bets regardless, but about many other stocks, Buffett was right.

Other than his huge stake in Apple — which certainly fits another Buffett mantra, buying great brands that maintain a competitive moat around their value — the billionaire investor hasn't made a major acquisition in years, even though he is sitting on more than $100 billion in cash. The biggest deal he recently made was to buy back near-$1 billion in shares of his own company's stock, a buyback decision he said would be made only at times when he felt Berkshire was trading below its intrinsic value.

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  Friday, 9 Nov 2018 | 8:10 AM ET

Billionaire Ron Baron sees the Dow reaching 500,000 in 50 years

Buy-and-hold billionaire Ron Baron predicted on Friday that the Dow Jones Industrial Average will reach 500,000 in the next 50 years.

Speaking from his annual investment conference in New York, Baron told CNBC the stock market reflects the economy. Therefore, he argued, if gross domestic product doubles every 10 years, so will the market.

Extrapolating that out, Baron said in a "Squawk Box" interview: "The Dow Jones in 50 years will be 500,000."

Investors can expect on average to make 7 or 8 percent per year in the market, said the founder of Baron Capital. "The stock market is the best vehicle for most people to invest in."

Baron's prediction for Dow 500,000 pretty much lines ups with billionaire investor Warren Buffett's thinking. Last year, Buffett said he sees the Dow reaching 1,000,000 in 100 years.

The Dow closed on Wednesday at 26,191.

Baron, an ardent critic of buying and selling stocks based on headlines, told CNBC on Friday his firm makes billions of dollars by doing extensive research, and then making long-term investments in what he feels are undervalued companies.

Also like Buffett, Baron said index funds are one of the best places for individual investors to put their money.

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  Friday, 9 Nov 2018 | 6:15 AM ET

Elon Musk is one-of-a-kind, like Warren Buffett and Jeff Bezos, says Tesla bull Ron Baron

Billionaire Ron Baron, a major Tesla shareholder, told CNBC on Friday that Elon Musk doesn't need "adult supervision."

"Are you kidding me? When all of a sudden you have this success? He could have retired when he was 30, 32 when he made $150 million, he chose to put all that money into SpaceX and into Tesla," Baron said in a "Squawk Box" interview from his annual investment conference at the Metropolitan Opera House in New York.

"This guy is worth $30 billion, $40 billion," Baron said two days after Robyn Denholm was named to replace Musk as Tesla chair. Musk was forced to relinquish the chairmanship in the wake of his infamous unfounded tweet that he had backing to take the electric auto maker private. Musk remains CEO.

"You need adult supervision?" Baron continued. "There's one Elon Musk. There's one Warren Buffett. There's one Jeff Bezos. There's one Sam Walton."

Tesla critics suggest that Denholm, a director there since 2014, does not count as the "adult supervision" they believe that Musk needs.

Meanwhile, Baron said he doesn't know Denholm, but expects to meet her next week.

He also said he's a "fan of women" in business. "[GM CEO] Mary Barra has done an amazing job." Women "think differently" than men, he added. He also credited women at Baron Capital who have "done an amazing job."

Musk has done phenomenally well with Gwynne Shotwell as president and COO of SpaceX, the entrepreneur's privately held commercial space company, Baron said, adding he hopes Denholm will be like Shotwell.

Tesla on Wednesday announced it elevated Denholm to chairwoman. Stripping Musk of the chairmanship was mandated as part of a September settlement with the Securities and Exchange Commission following his August tweets in which he claimed he had secured funding to take Tesla private at $420 a share.

During Thursday's trading session, Tesla eclipsed $357 per share, topping the $356.77 price when Musk sent those tweets. Tesla shares were down as much as 26 percent at their near-term closing lows on Oct. 19.

Last month, in his first CNBC appearance since Musk's erratic behavior over the summer, Baron told "Squawk Box" that he believes Tesla could be a $1 trillion company in revenue by 2030.

Baron reiterated that prediction on CNBC Friday, and added "maybe a $2 trillion in valuation" someday.

The Baron Capital founder said his average cost of acquiring his Tesla stake between 2014-2016 stands at $219 per share. Baron Funds currently owns 1.7 million shares, worth nearly $600 million at Wednesday's close of $351 per share.

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  Thursday, 8 Nov 2018 | 10:59 AM ET

The bull market's biggest buyer is back — companies are buying back stock at a record pace

Posted ByThomas Franck
Bulls running
Getty Images

The stock market's biggest buying force is on track to post a historic November as corporations resume a rapid pace of share buybacks after third-quarter earnings announcements.

"November is shaping up to be the strongest buyback month on record," J.P. Morgan quantitative strategist Marko Kolanovic wrote in a note to clients Wednesday, citing activity observed by the bank's trading desk.

Investors blamed a so-called buyback blackout as a reason for the October rout in markets. Companies are barred from buying back their own stock in a window around their earnings releases. Buybacks have been a driving force behind this bull market with companies even issuing debt at low interest rates to repurchase their own stock.

Other data support J.P. Morgan's numbers. In the past four weeks as earnings announcements wound down, buybacks have averaged $3.3 billion daily, with the number of announcements running at the fastest pace in the past three years, according to TrimTabs Investment Research data from Wednesday.

Overall, Goldman Sachs notes that buybacks for companies in the S&P 500 jumped by 51 percent in the first half of the year as companies spent the money from the tax cut, especially the funds that were trapped overseas. Goldman Sachs expects S&P 500 share repurchases to climb another 22 percent to $940 billion next year.

The recent buying has been fairly concentrated, with buybacks for Wells Fargo ($18.1 billion) and Merck ($10 billion) accounting for a combined 43 percent of the volume, the site said in a press release. In all, 13 companies have introduced buybacks of at least $1 billion.

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  Thursday, 8 Nov 2018 | 9:11 AM ET

Warren Buffett-owned DaVita plunges 9% after soaring on midterm elections

Dialysis treatment at DaVita Lowry Dialysis Center in Denver.
Joe Amon | The Denver Post | Getty Images
Dialysis treatment at DaVita Lowry Dialysis Center in Denver.

DaVita shares plunged more than 9 percent Thursday, threatening to erase all of the dialysis provider's gains the day before.

Investors sold off DaVita after the Denver-based company reported late Wednesday third-quarter earnings of 56 cents per share on revenue of $2.85 billion, missing Wall Street projections on both. Analysts had expected earnings of 87 cents per share and $2.93 billion in revenue, according to data compiled by Refinitiv.

The disappointing earnings erased almost all of the 9.9 percent rally in the shares Wednesday after California voters rejected a measure that would have cut into the company's profits.

Warren Buffett's Berkshire Hathaway owns a 23 percent stake in DaVita.

The ballot measure would have capped the amount of money dialysis providers in the state can earn on treating certain patients.

Pushed by the Service Employees International Union, the measure would have limited the revenue dialysis providers could earn through rates from privately insured patients to 115 percent of the costs to provide the care.

DaVita, which operates half of all the chronic dialysis clinics in the state, had shelled out $66.6 million of the more than $110 million spent by the industry lobbying against Proposition 8.

WATCH:Why you shouldn't panic when stocks are getting slammed

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  Wednesday, 7 Nov 2018 | 8:30 AM ET

Warren Buffett-owned DaVita jumps 10% after voters reject cap on dialysis revenue

DaVita shares soared Wednesday after California voters rejected a ballot measure that would have capped the amount of money dialysis providers in the state can earn on certain patients.

Sixty-one percent of voters said "no" to Proposition 8 in Tuesday's midterms.

Pushed by the Service Employees International Union, the measure would have limited the revenue dialysis providers could earn through rates from privately insured patients to 115 percent of the costs to provide the care. Anything above would be put to dialysis providers, which would be forced to give insurers or patients rebates to make up the difference.

"We are grateful that Californians voted down Proposition 8," DaVita said in a statement Wednesday, "It's disappointing that the SEIU-UHW used the ballot initiative process as leverage in pursuing their own objectives, despite the potential harmful consequences to nearly 70,000 California dialysis patients."

Warren Buffett's Berkshire Hathaway owns a 23 percent stake in DaVita, which saw its shares rise more than 9 percent in premarket trade Wednesday. The stock was up more than 10 percent by midmorning.

The Denver-based company, which operates half of all the chronic dialysis clinics in the state, had shelled out $66.6 million of the more than $110 million spent by the industry lobbying against Proposition 8.

DaVita operates 292 clinics in California and more than 2,500 clinics nationwide. It reported revenue of more than $2.8 billion in the second quarter.

In a statement Wednesday, the SEIU said DaVita and the dialysis industry used "massive spending to scare and mislead Californians; imagine if that money had been spent to improve conditions in the clinics instead."

"To protect their outrageous profits, the dialysis corporations spent more than $111 million to defeat Prop. 8, the most ever spent to defeat a ballot initiative in U.S. history," the SEIU said.

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  Monday, 5 Nov 2018 | 12:11 PM ET

Warren Buffett sends 'strong signal' to market with Berkshire Hathaway's $1 billion buyback

Posted ByLiz Moyer

Billionaire investor Warren Buffett was putting money to work in stocks this summer, including Berkshire Hathaway's own shares.

The Omaha, Nebraska, conglomerate bought nearly $1 billion of its own shares in August, the company disclosed in a securities filing on Monday after releasing its third-quarter earnings on Saturday.

Berkshire's Class B shares jumped more than 5 percent on Monday, leading the financial sector higher, on expectations that the buying may have continued into the final three months of the year. During October, Berkshire hit a high of $223 before falling to $198 and then rebounding. They closed trading on Monday up 4.68 percent, to $216.24.

The buying "sends a really strong signal to the market," said Edward D. Jones analyst Jim Shanahan.

Details from its filing show Berkshire was active buying other stocks between July and September as well. Net purchases of equities through the first nine months of the year were $24.4 billion, more than double the $11.8 billion net purchases reported through June. That means net purchases in the third quarter were about $12.5 billion.

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  Friday, 2 Nov 2018 | 12:24 PM ET

Warren Buffett loses nearly $4 billion in single day on his Apple stake

Posted ByThomas Franck
Warren Buffett, CEO of Berkshire Hathaway
Paul Morigi | Getty Images
Warren Buffett, CEO of Berkshire Hathaway

Warren Buffett's Berkshire Hathaway lost more than $3.5 billion on Friday as Apple's stock headed for its worst day on Wall Street in more than four years.

Apple — which posted its fifth consecutive week of losses for the first time since 2012 on Friday — finished the day down 6.6 percent, its worst one-day move since January 2014. The Oracle of Omaha owned more than 250 million shares of the Cupertino, California-based company as reported in Berkshire's latest holdings filing at the Securities and Exchange Commission.

At Friday's closing price for Apple of $207.48, Buffett is down $3.7 billion. The company closed at $222.22 on Thursday before the disappointing report.

Apple's stock sank after the company's iPhone shipments for last quarter fell short of analyst expectations. The company also issued a financial outlook for the rest of the year that underwhelmed some investors. Those factors foiled the company's stronger-than-expected earnings and revenue.

However, Buffett's losses are likely even more painful: he told CNBC at the end of August that he bought more Apple shares since the end of June, when he reported that he bumped his stake up by 5 percent.

"We bought just a little [more]," he said about two months ago on CNBC in an interview with Becky Quick.

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  Monday, 29 Oct 2018 | 4:44 PM ET

Berkshire's new fintech investments fit into a classic Buffett strategy — bet on an entire industry

Posted ByKate Rooney
Warren Buffett
David A. Grogan | CNBC
Warren Buffett

At first blush, Berkshire Hathaway's recent early-stage fintech investments may seem out of place. But they do fit with Warren Buffett's longtime strategy of making multiple bets across an entire industry.

Buffett's conglomerate, which typically takes stakes in blue chip American companies, recently invested about $600 million in two fintech companies focused on emerging markets — Paytm and StoneCo, The Wall Street Journal reported Monday. Both investments were led by one of Berkshire's two top money managers, Todd Combs.

While it's rare for Berkshire to invest in tech start-ups, it's not so rare for the holding company to make seemingly competing investments in one industry. Berkshire owns banks Wells Fargo, Bank of America (its largest overall holding) and Goldman Sachs, as well as major stakes in four domestic airlines.

Berkshire's newest industry bet appears to be on payments. In addition to the start-ups revealed this week, Berkshire Hathaway has a significant stake in the three largest U.S. incumbents — Visa, Mastercard and American Express.

Like the U.S. payment giants, Paytm and StoneCo dominate their respective marketplaces. Berkshire took a $300 million stake in August in Paytm, India's largest mobile-payments service that claims to have more users than PayPal, according to the Wall Street Journal. Berkshire bought shares in Brazilian payment processor StoneCo when it went public last week.

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  Saturday, 27 Oct 2018 | 10:00 AM ET

Take them all private — legacy companies from Kellogg to Clorox could be better off out of the public eye

Posted ByLauren Hirsch
Cans of Campbell's Chicken Noodle Soup are seen in a supermarket in New York.
Richard Levine | Corbis News | Getty Images
Cans of Campbell's Chicken Noodle Soup are seen in a supermarket in New York.

Consumer companies from Kellogg to Clorox are maybe not best suited for the public eye.

Public investors crave growth, but America's oldest brands are not growing. They are fighting for eaters whose tastes change constantly and new brands that pop up by the minute.

Those brands, though, are still valuable. They could be even more valuable if out of the public spotlight.

Iconic names like Heinz ketchup and Special K cereal are always going to have a place in the Americans' cupboards and refrigerators. The trouble is these brands still require investment — like simpler labeling and cleaner ingredients — to compete as upstart brands offer health and transparency. It's hard to make these investments while held hostage to quarterly earnings targets.

So far, consumer companies have largely been able to manage their challenges by cutting costs to grow earnings, in lieu of growing sales. Kraft Heinz and its 3G-led zero-based budgeting approach to company management helped usher in a new era of cost-slashing for consumer companies.

That process has largely worked. Public investors value consumer companies today by 40 percent more than they did five years ago. Those valuations are also boosted by the fact investors often view these stocks as safe investments with steady dividends.

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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.