Friday, May 16, 2008

Investment Ideas from the Undisputed Champion

Food, banking, refrigeration equipment and healthcare looked like areas of opportunity to Warren Buffett in the first quarter of 2008. He thinks at least one railroad will increase its earnings and stock price too. That's judgment you can trust. No securities analyst in history has maintained such a sharp eye for opportunity over as many years. For anyone who wants to take the worry out of investing, the best strategy is following Buffett's lead.

Buffett's Berkshire Boosts Kraft, Wells Fargo Stakes

May 16 -- Billionaire Warren Buffett's Berkshire Hathaway Inc. took advantage of falling share prices in the first quarter to boost stakes in Kraft Foods Inc. and Wells Fargo & Co.
Buffett also increased holdings in Ingersoll-Rand Co., the refrigeration-equipment maker, and health insurers UnitedHealth Group Inc. and WellPoint Inc., according to a regulatory filing yesterday by Omaha, Nebraska-based Berkshire. The Standard & Poor's 500 Index declined 9.9 percent in the first three months of the year.

"If a stock goes down 50 percent it doesn't bother me in the least,'' Buffett told reporters earlier this month after Berkshire's annual shareholder meeting in Omaha. "If we're going to be buying things, we want to buy them on sale.''

Buffett, 77, built Berkshire from a textile manufacturer into a $200 billion holding company with a $72.6 billion stock portfolio by investing premiums from insurance units such as Geico Corp. and National Indemnity Co. Berkshire is the largest shareholder of Coca-Cola Co., Wells Fargo, Kraft and American Express Co. as of March 31, according to Bloomberg data.

Berkshire's holdings of Kraft, the world's second-biggest foodmaker, rose 4.4 percent since Dec. 31 to 138.3 million shares, according to the filing, which discloses U.S. equity investments as of March 31. Kraft shares fell 5 percent in the first quarter.

Kraft rose 11 cents to $32.04 at 9:57 a.m. in New York Stock Exchange composite trading. Ingersoll-Rand increased 86 cents, or 1.9 percent, to $45.60. UnitedHealth climbed 35 cents to $32.05, while WellPoint gained $1.06, or 2.1 percent, to $50.94. Wells Fargo declined 57 cents, or 1.9 percent, to $29.03.

Wells Fargo

Berkshire's stake in San Francisco-based Wells Fargo, the second-biggest U.S. home lender, increased by 1.4 million shares to about 290.7 million. The bank averaged $29.74 on the New York Stock Exchange during the first quarter, about 9 percent lower than in the last three months of 2007, when Buffett increased Berkshire's ownership by 3.4 percent.

``He's putting more in the things he's invested in all along,'' said Frank Betz, a partner at Carret Zane Capital Management, which oversees $800 million including Berkshire shares in Warren, New Jersey. ``We'll see more of that; why reinvent the wheel?''

The filing reported no new companies in the portfolio, unlike the prior quarter, when Berkshire disclosed having built a stake of more than $4 billion in Kraft, or last year, when the company revealed it became the largest shareholder in railroad Burlington Northern Santa Fe Corp.

Extreme Dislocations

Berkshire has spent $4 billion in the municipal auction-rate bond market, taking advantage of payouts that topped 10 percent after regular bidders fled, Buffett said at the annual meeting. Markets were so disrupted, he said, that bonds from the same issue were selling simultaneously from the same broker with yields of 6 percent and 11 percent.

``Those are extreme dislocations,'' Buffett said during a question-and-answer session with shareholders on May 3. ``Those are great times to make unusual amounts of money.''
Buffett will be in Europe next week meeting with owners of large family-run businesses as he looks to put $35 billion of cash to work.

UnitedHealth, WellPoint

Berkshire added to its stakes in the two largest U.S. health insurers in the first quarter as the shares fell. Holdings in Minnetonka, Minnesota-based UnitedHealth and in Indianapolis- based WellPoint increased by 6.7 percent each. WellPoint lost half its market value in the quarter while UnitedHealth tumbled 41 percent.

Buffett, the world's richest man according to Forbes magazine, is often mimicked by investors who follow his stock picks. Using that strategy for 31 years would have delivered annual returns of about 25 percent, double the return of the S&P 500, according to an academic study in 2007.
Berkshire disclosed a 47 percent increase in shares in Hamilton, Bermuda-based Ingersoll-Rand. Buffett's company had 936,600 shares as of March 31.

Buffett reported no holdings in Minneapolis-based Ameriprise Financial Inc. compared with more than 600,000 shares on Dec. 31. Berkshire had the stake from when the investment adviser was spun off from American Express in 2005.

Iron Mountain, Ameriprise

Berkshire cut its holdings of Iron Mountain Inc., the records-storage company, by 28 percent to 3.37 million shares.

Ameriprise fell 23 cents to $50.42. Iron Mountain fell 12 cents to $29.80.


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