Berkshire’s annual get together is Saturday with Buffett and Munger back together, stocks at record highs

Berkshire Hathaway CEO Warren Buffett (L) and Vice Chairman Charlie Munger attend the 2019 Annual General Meeting in Omaha, Nebraska, on May 3, 2019.

Johannes Eisele | AFP | Getty Images

Warren Buffett will be kicking off Berkshire Hathaway’s annual shareholders meeting this Saturday. The conglomerate’s stocks are at record highs and its myriad operations and holdings are geared to capitalize on the pandemic’s reopening of the U.S. economy.

Due to Covid-19, the event will take place for the second time with practically no participants. This year, however, the 90-year-old Buffett is taking the meeting to Los Angeles so he can stand by the side of 97-year-old Berkshire vice chairman Charlie Munger again. Munger lives in Los Angeles and missed the final annual meeting due to travel restrictions. This is the first time the annual get-together has been held outside of Omaha, Nebraska.

While Woodstock for Capitalists will miss the capitalists again, the tone of the gathering is likely more like the old gatherings of shareholders calling for Buffett’s worldview for an unprecedented year.

“I hope the general behavior of the Berkshire people is quite a sharp contrast,” said Cathy Seifert, a Berkshire analyst with CFRA Research. “Last year there was some alarm just because this was an event that was very difficult to assess. It was written on his face. At this annual meeting, the tone should be more relaxed from the underlying operational perspective.”

(You can see last year’s annual meeting and the others in the Warren Buffett Archives.)

The other Berkshire Vice Chairs, Ajit Jain and Greg Abel, will also be on hand to answer questions during the three and a half hour event. Berkshire B shares rose more than 1% over the course of the week, representing a 12-month gain of more than 47%.

Here are some of the big topics that shareholders want answers to:

  • Airlines: His thoughts on the industry after revealing at last year’s meeting, he sold all of his stake (with the shares bellowing back afterwards)
  • Deploying the $ 138 Billion Stack of Cash: Why he bought back a record amount of Berkshire’s stock instead of making a large acquisition and what his plan is for the future
  • Market outlook: His thoughts on the overall valuation of the stock market after the comeback of the pandemic
  • Air bubbles ?: Cryptocurrencies and the other possible market manias that have popped into the markets amid the huge onslaught of retail investors
  • Life according to Buffett and Munger: Berkshire’s Succession Plan

Dumped Airlines

At its last annual meeting, Buffett announced that Berkshire had sold all of its equity position in the US aerospace industry. This included stakes in United, American, Southwest and Delta Air Lines, which together were worth more than $ 4 billion.

“The world has changed for the airlines. And I don’t know how it has changed, and I hope it corrects itself in a reasonably quick manner,” Buffett said at the time. “I don’t know if Americans have changed their habits now or will change their habits because of the longer time.”

The sale gave the legendary buy-and-hold investor a pessimistic view of the industry. However, many Buffett watchers were disappointed when the stocks of these airlines soon experienced an epic surge, hitting triple-digit numbers from 2020 lows. Even former President Donald Trump weighed on the trade at the time, saying that Buffett was right “all his life” but made a mistake selling airlines.

“He could acknowledge that the speed of this recovery has been faster than expected,” said CFRA’s Seifert. “The airline’s disposal may have been a function of their belief that what goes on in the aviation industry can be secular, not cyclical. This is the only subtle distinction investors want it to make.”

While airline stocks have rallied dramatically over the past year, many argue that the industry may indeed have changed radically due to the economic impact and the road to a full recovery remains bumpy. United Airlines said earlier this month that the recovery from business travel and international travel is still a long way off, even as the economy continues to open up.

“He may still be right about the aviation industry as travel is slowly returning and there are too many planes,” said James Shanahan, an analyst at Edward Jones. “He could probably still be right about that, but he’s certainly wrong about stocks.”

New stocks move

Berkshire bought back a record $ 24.7 billion in treasury stock last year. Buffett also did some bargain hunting during the market comeback, taking sizable positions with big dividend payers Chevron and Verizon.

Apple was still the conglomerate’s largest common stock investment through late 2020. The Buffett conglomerate also appeared to be rolling back its exposure to financials. Berkshire left his positions in JPMorgan Chase and PNC Financial late last year, while the Wells Fargo stake cut was trimmed by nearly 60%.

“When you think of the legacy of Berkshire Hathaway and all of its operating companies, including railways, manufacturing, retailing, utilities, they are all old-economy type companies,” Shanahan said. “The way the portfolio is now put together after selling airline stocks and selling financial stocks, along with the tremendous performance at Apple, looks a lot more like the new economy now.”

Shanahan estimated that Berkshire bought back an additional $ 5 billion of its own stock in the first quarter, based on proxy filings.

“Elephant-sized” deal?

The conglomerate was still sitting on a huge cash box of more than $ 138 billion at the end of 2020. Buffett has yet to make the “elephant-sized acquisition” he has been heralding for years. At last year’s meeting, the legendary investor gave a simple reason for inaction.

“We didn’t do anything because we didn’t see anything that attractive,” said Buffett. “We’re obviously not doing anything big. We’re ready to do something very big. I mean, you could come to me Monday morning with something that is $ 30 billion, $ 40 billion, or $ 50 billion. And if that’s what we are, really like.” see we would do it. “

The environment for doing business has only become all the more competitive in the past year with the rapid rise of SPACs or acquisition companies for special purposes. According to SPAC Research, more than 500 blank check deals worth over $ 138 billion are currently looking for their target companies.

“This is a significant company with a significant liquidity position. Investors have a right to know what they intend to use the cash,” said Seifert. “You have the right to have more than an excuse. Investors get a little tired if it’s just the same old story. But the stock has recovered well so they won’t grumble too much.”

Succession

When it comes to a specific succession plan, shareholders may not get much more from Buffett and Munger, even though they’re both non-agents now.

Abel, vice chairman of the non-insurance business in Berkshire, is considered a top contender to succeed Buffett.

“I don’t expect him to talk about succession in any more detail than he has already,” Shanahan said. “Elevating Abel and Jain to the role of Vice-Chairs and having them available and attending the annual meeting speaks volumes. I think it doesn’t have to say more than that.”

Did you like this article?
For exclusive stock selection, investment ideas and global CNBC livestream
Sign up for CNBC Pro
Start your free trial now

Comments are closed.