Berkshire Hathaway Inc stock shows strong signs of entering a consolidation

Berkshire Hathaway Inc. stock shows strong signs of entering a consolidation and maturity phase, being a safe long-term stock pick

-Solid financial performance but having difficulty generating excess market returns in the future
-Valuation is not too expensive, signaling not any red flags compared to its main industry peers
-Wells Fargo recent scandal may however have a negative effect to Berkshire Hathaway Inc. if in the future a global banking financial system crisis occur
Berkshire Hathaway Inc. stock class B (NYSE:BRK.B) has so far this year an identical performance compared to major market indices S&P and Dow Jones, showing a gain of about 12%. Having a beta of 0.77 means that in fact being a defensive stock, actually performed better than the general stock market. The company is actually a conglomerate, being in the financial sector and insurance industry, but having a diverse portfolio of businesses.

The stock has a solid financial performance last year, but in the future there are risks of not being able to provide excess returns
According to a survey by IDC about challenges and trends for the insurance industry in 2016, 2 major risks are the threat of new entrants entering in the market and rising competition, and new investments required in the digital era to face new forms of threats. While profitability for last 5 years is good and shows a rising trend as both net profit margin ratio and return on equity ratio have increased, growth in net income and earnings per share seems to decrease. 5 years revenue growth also seems to increase at a diminishing rate. Free cash flow growth on a yearly basis for last 5 years shows a very erratic move, with a very significant decrease in last year, while debt/equity ratio shows a remarkable stability and is low enough, showing financial strength and stability. 5 years earnings growth forecast is 7.1% which is not too excessive and shows a mature growth company.
Valuation of Berkshire Hathaway Inc. stock class B (NYSE:BRK.B) is not too expensive, although price growth is expected not to be excessive
Current valuation of stock price class B for Berkshire Hathaway Inc. compared to its industry show that the stock has a lower Price/Earnings ratio of 14 compared to the Price/Earnings ratio of 17 for the insurance industry, while the stock has higher Price/Book, Price/Sales and Price/Cash Flow ratios than relevant industry ratios. Operating Margin and Net Profit Margin ratios for the company on a 5 years average are both significant higher than the ratios of the insurance industry. The same result applies also for Return on Equity ratio for the company, showing a better profitability and management effectiveness compared to its industry.

Wells Fargo recent scandal could be a high risk event as Berkshire Hathaway Inc. is the largest institutional owner of Wells Fargo stock
As a conglomerate the significant investment in Wells Fargo stock at about 9.5% total ownership is both promising and risky. In many cases stocks that have bad related news, such as scandals about financial statements tend to underperform the general stock market as the demand for their shares falls significantly. A significant drop in the stock price of Wells Fargo due to the recent scandal could have negative impact on the overall profitability of Berkshire Hathaway Inc. The banking sector is fragile this period as another important global bank, Deutsche bank is under pressure having to deal with an enormous amount of fine, $14 billions, imposed to it by the US Department of Justice for selling mortgage securities in the US a few years ago. A domino effect scenario in the financial sector and banks with a new crisis can only hurt Berkshire Hathaway Inc. At the same time the company has increased its position in Apple(Nasdaq:AAPL), and so far Apple stock is performing well enough having increased lately due to strong sales of new IPhone 7.

Conclusion of investment thesis
We think that Berkshire Hathaway Inc. stock class B having closed on September 28th 2016 at $145.28 per share is a hold. Valuation does not seem to be excessive, but at projected future 5 years earnings growth of 7.1% the potential for stock price increases, but at a moderate pace. We have a 12 months price target increase of 8-10% from current level or $156-$160 per share, ideally buying shares at any possible sell-off for a better risk adjusted return.

Sources and legal disclaimer:
The author does not owe any BRK.B stocks, this is not an investing recommendation,just financial analysis,, Google finance

The stock market on the internet is a blog about stock market analysis focusing on stocks both from a long and short position and does not offer investing recommendation,just pure financial analysis.

Alphabet Inc. (GOOGL) is trading near 52week highs can it go much higher?

Alphabet Inc. (GOOGL) is trading near 52week highs, can it go much higher?

-Google launches new applications to innovate and find possibly new streams of revenues

-EU antitrust charges on android is a major concern, that can affect stock price

-Valuation shows some mixed signs, it is not extremely expensive but also not a bargain

– EU antitrust charges on android is a major concern Alphabet Inc.(GOOGL) stock price closed on Friday 23rd September 2016 at $814,96 per share, having made an impressive one year rally return of almost 28%, up from $638,37 per share stock closing price on September 30th 2015. Is this stock price rally sustainable, and if yes what are price levels to watch for?

Google launches new applications to innovate and find possibly new streams of revenues

Recently Google launched a new application to make travel planning and organizing easier, called Google trips. Travel industry is a very large business and apparently Google wants to monetize new sources of revenues. But Google also is investing capital and exploiting alternative sources of revenues in many other industry and business sectors, from health sector and pharmaceuticals, to autonomous vehicles technology and new ventures in startups companies.  Investing capital in research and development has both a positive and a negative result. While exploring new business ideas, technologies, marketing opportunities can provide significant income and boost profitability as now Alphabet is a conglomerate which owns Google, there can be also significant delays and capital invested with uncertain financial results. Startups carry a lot of risk, and returns come only after many years, while capital committed is also significant. Alphabet recently reported according to the news to be interested to buy Twitter. This move can be advantageous if the mass user audience of Twitter is exploited to add mobile advertising revenues, but there is the risk of Alphabet overpaying for a company which struggles with profitability. Is Alphabet certain or confident that can make a profit utilizing Twitter as a business advertising platform, when Twitter itself cannot be profitable during last fiscal financial years?

EU antitrust charges on android is a major concern, that can affect stock price

Google has to face soon European Union claims that on Android system it favored its own browser and in fact restricted competitors to advertising and other mobile services. Google has a dominant position in Android operating system and if European Union decide that indeed Google breached antitrust and competition cases, a potential large financial fine of about $7.4 billion could be imposed to Google with at least a short term negative impact on its stock price.

Valuation shows some mixed signs, not at extreme levels

Google has been able to produce last 5 fiscal years increasing net income and earnings per share for each year. But there is a mixed overall image as in last 5 quarterly earnings per share releases, it has 3 negative surprises. Operating margin and net margin have been steadily declining over last 5 years. Return on Equity and Return on Assets have also followed a declining 5 years trend. Earnings per share growth for next 3-5 years is estimated to 15.77%, which is not unrealistic. What about relative value analysis of Alphabet Inc. (GOOGL) to its Sector, Technology and its Industry, Internet Information Providers? Alphabet Inc. has a trailing twelve months P/E ratio of 30.98, lower than the industry P/E of 39.34 but higher than the sector P/E of 17.87. Trailing twelve months P/S ratio for Alphabet Inc. is lower than both the relevant ratios for its sector and industry, P/B ratio for most recent quarter is lower for Alphabet compared to the industry ratio but higher than the relevant sector ratio. P/CF ratio for Alphabet Inc. for trailing twelve months is lower than both the ratios for the industry and its sector.

Comparing the main peers of Alphabet Inc.(GOOGL) , Baidu Inc.(BIDU,) Yandex(YNDX), Yahoo Inc.(YHOO) and Microsoft(MSFT) on a relative valuation for main financial ratios P/E,P/S and P/BV we notice that Alphabet Inc.(GOOGL) has only lower current P/E than Yandex, P/BV for Alphabet Inc. is higher only compared to Yahoo Inc. ratio and P/S ratio for Alphabet Inc. is higher compared to its peers ratios with the exception of Yahoo Inc., which has the same ratio of 7.34. If we add Facebook Inc. (FB) to the comparative analysis then Alphabet Inc. has all its mentioned ratios lower than Facebook.


Having a quick look at technical analysis Alphabet Inc. (GOOGL) is trending upwards with current price above the simple moving averages of 50 and 200 days. There is resistance at current levels where 52 week high of $819.06 per share is, but above this there are no significant resistances. We think at current levels Alphabet Inc. (GOOGL) is a hold, mainly due to its recent stock price rally. Adding positions to the price range of $780-$790 per share with 12 months target price of 10% and range of $890-$900 per share.

Legal Disclaimer:

The author does not own any Alphabet Inc. (GOOGL) stocks. This is just financial analysis,not an investing recommendation.Sources used are Google Finance,Zacks,MorningStar,Reuters.

The stock market on the internet is a blog about stock market analysis focusing on stocks both from a long and short position and does not offer investing recommendation,just pure financial analysis.

Intel stock falls today as beats earnings but misses on revenue forecast

Intel stock(INTC) falls today almost 5.5% now trading at $35.65 per share.Intel had a strong quarter announcing $0.80 earnings per share beating estimates of  $0.73 per share.Revenue was better this quarter also than estimates, at $15.78 billion while estimates were $15.58 billion.So the selloff today is mainly attributed to the lower guidance for 4th quarter revenues.

Is frequent stock market trading portfolio good or bad

Stock market and frequent trading

Is frequent stock market trading portfolio good or bad?Is the idea how to make more money in the stock market not a top one?

In this article the concept is simple, do not trade very often to make more money in the stock market.This concept is interesting especially for the long term to avoid a lot of trading costs and commissions.But financial and economic conditions are not constant.So a frequent change of the stock market portfolio maybe necessary.The question is how frequent?Ok not daily or even weekly or maybe montly.But each quarter or when specific conditions change such as news that are important, then changing the composition of the stock market portfolio is almost necessary.But it all adds up to each individual personal investment policy statement and how risk averse the investor is.

Apple gave a huge boost to Nintendo stock today

Stock market is unpredictable

It is very hard to predict stock market moves.Technical analysis and fundamental analysis try to predict how stock market will move.But if we could predict with accuracy stock market movements we would all make money.Today Apple gave a huge boost to Nintendo stock.
At live Apple event it was revealed that Nintendo(NTDOY) will partner with Apple on two of its popular games,Super Mario and Pokemon Go.At the time of release share of Nintendo very soon gained almost 26 percent up $7.35 at $35.55.A great and very quick profit as stocks often react with volatility in good or bad news.Apple shares(AAPL) also gain after the release of new products.

ISM non-manufacturing index for August 2016 is bad

Stock market and ISM non-manufacturing index

The stock market relies on fundamentals and broader economy.This is common sense.Today ISM non-manufacturing index for August 2016 was released.A major negative surprise,yet above 50 indicating expansion.
Initially the US dollar was weakened significantly against major currency pairs.The US stock market shows little movement to this negative surprise.

At some point quantitative easing will end in Europe and the US

Stock market and quantitative easing

An interesting article on Europe and quantitative easing.At some point this quantitative easing will stop.What will be the implications for stock market and bonds?In the article JPMorgan says this may push debt yields up from record lows.A change in spreads for long term and short term bonds is very possible.But stocks will benefit or not from an end to quantitative easing?

It is mainly about fundamentals first,then supply and demand.If we focus on fundamentals then the end of quantitative easing should have little effect on stocks.But supply and demand will probably play a role.

September 2016 investing

Stock market ends up after weaker US jobs reports

With US job reports for the month of August 2016 now released the US stock market ended up yesterday.Crude oil gained also on a weaker dollar.They often say bad news lead to gains.The report was not too bad.As we mentioned seasonality in jobs during summer is not so indicative about the labor market.We are entering in September with FED rate hike expectations but as US elections are near maybe the FED will prefer not take action until then.

Waiting for the US job market report and a new trend

Stock market and job reports

Today the US stock market is waiting for the non-farm payrolls report and analysis of new jobs and unemployment.Will a stable jobs creation trend appear?Extreme values could appear but a stability in jobs creation is always a good thing for stocks.Also seasonality is important as this month report will be about last summer month.