Berkshire Hathaway is buying back, but do investors see the value?

Today Berkshire Hathaway launched a rare share buyback program following an announcement Monday that the company would pay up to 10 percent more than book value for the stock. The buyback is a rare move for Berkshire Hathaway and Warren Buffet, who has historically preferred acquisitions or spending on infrastructure.

Is buying its own shares the most attractive investment for Berkshire? FactSet clients can use Ownership 2.0 to find out.

The price of Berkshire Hathaway has been declining since March. Did investors think the stock price was undervalued and purchase shares at a “value” price? It seems uncertain, since the security just hit the 52-week low this past week, but we can use ownership data to see how investors have reacted to stock price changes.

How will the top holders react to the share buyback? Will they increase or decrease their positions and will it depend on the type of investor?

The top holders of Berkshire B class are diverse. The top 20 holders make up 75% of the shares outstanding and include mutual funds, insiders, pension funds, and endowments. Will they react similarly to the share buyback or will certain holder types react differently than others?

Over the past three months, many of the top positions have also had the largest buys and sells of the security. The Gates Foundation, which is the largest holder of BRK.B, had the largest increase in position, while the two largest mutual fund managers (State Street and Blackrock) have had two of the largest decreases in position.

Below is Blackrock’s position in Berkshire-Class B over the past year compared to the stock price. Blackrock purchased the security as the price was increasing, held onto it while the stock price was volatile, and have most recently sold a portion of its shares as the price has declined.

The Class A shares are largely held by Buffet himself and the top holders make up over 94% of the shares outstanding. Over the past year Buffet has increased his insider position in BRK.A.

Within the A share class, four of the largest holders are also the making the largest moves to increase their position. Capital World Investors, First Manhattan Co, Fidelity, and Ruane, Cunniff & Goldfarb have all increased their position in the last three months. This trend could be a sign that they are taking advantage of the “value” price.

 
Do investors really consider Berkshire to be at a “value” price? It will be interesting to see if additional value type investors enter into either the A or B share classes of the security since it hit its 52-week low.

Over the past six months (February to August 2011), 627 institutions have either increased or initiated new positions in the more heavily traded Berkshire-Class B.

Compared to the same period one year ago, 788 institutions increased or initiated a new position in Berkshire-Class B. So there were more increases in the previous year than in the past six months. Is this an indication that maybe investors are not considering it a value price?

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