The Star Online: Business
The Star Online: Business |
- Buffett: Performance streak may end this year
- Yahoo to shut down seven products, including Blackberry app
- With record highs in sight, US stocks face roadblocks
| Buffett: Performance streak may end this year Posted: 02 Mar 2013 05:21 AM PST NEW YORK: Berkshire Hathaway may end a long streak of outperforming the S&P 500 this year, Chief Executive Warren Buffett warned shareholders on Friday, even as he said he was still eagerly hunting for acquisitions to grow the ice-cream-to-insurance conglomerate. In his annual letter to investors, Buffett opened up with a caution that this year, for the first time, the growth in Berkshire's book value per share may underperform the growth in the S&P 500 when measured over a five-year period. "To date, we've never had a five-year period of underperformance, having managed 43 times to surpass the S&P over such a stretch," he wrote. "But the S&P has now had gains in each of the last four years, outpacing us over that period. If the market continues to advance in 2013, our streak of five-year wins will end." Buffett said he expects the growth in Berkshire's intrinsic business value will over time exceed the S&P's returns by small margins. But at the same time, he said the firm would continue to underperform in a strong market like this year. Long-time Berkshire investors said they detected almost a sense of frustration in this year's letter. "He's gotten away from some of the things that used to just matter to him so much," said Bill Smead, chief investment officer of Smead Capital Management in Seattle. "He has so much capital I don't think he can just rely on a stock portfolio the way he used to." Just last month, Berkshire struck a deal to put $12 billion of that capital toward the $23 billion cash buyout of ketchup maker H.J. Heinz Co. Buffett said he and vice chairman Charlie Munger were not done. "But we still have plenty of cash and are generating more at a good clip. So it's back to work; Charlie and I have again donned our safari outfits and resumed our search for elephants," Buffett said in the annual letter. Berkshire reported $47 billion of cash on hand at December 31. Backing out the Heinz deal, and even with Buffett's preferred $20 billion cash cushion intact, that would leave Berkshire at least $15 billion to spend. Another long-term Buffett investor said he was perfectly content with Berkshire's returns precisely because of all that cash generation. "It was an accurate assessment on his part in terms of performance, but I'll tell you as a shareholder I'm not terribly disappointed," said Michael Yoshikami, chief executive and chairman of the investment committee at Destination Wealth Management in Walnut Creek, California. "We buy it because it's a cash flow oriented position. If I get outperformance it's a win." MORE NEWSPAPERS Buffett did not hint at what sort of companies he would like to acquire, except note that one thing he will buy more of are newspapers. Despite a years-long aversion to the business, Berkshire has of late been buying up papers in smaller communities across the country. Buffett said Friday he will continue to do so. "At appropriate prices - and that means at a very low multiple of current earnings - we will purchase more papers of the type we like," he said. He also noted that Berkshire would keep buying papers even if they did not meet the firm's stated investment criteria for other companies, as long as the economics of any deal made sense. Berkshire employs more than 288,000 people worldwide in dozens of business. Buffett serves as chairman, chief executive and chief investment officer. When he leaves, at least four people will replace him in those various roles. Buffett's annual shareholder letter is one of the most closely read public statements by any investor or executive in corporate America. It often comes out early on a Saturday morning, and Buffett devotees have been known to set aside an entire weekend to read and digest it. (It was released Friday night this time for scheduling reasons related to SEC filing deadlines). TO CONTINUE DIVIDEND POLICY Buffett also offered a lengthy treatise on the upside - and downside - of companies paying dividends to shareholders, by way of explaining why Berkshire would continue its policy of not paying one out. Buffett devoted three full pages from the 24-page letter to explaining his philosophy. Destination Wealth's Yoshikami suggested that was a nod to the recent attention on companies like Apple Inc with huge cash piles. "I think investors aren't necessarily clamoring for dividends, they just want clarity on what you're doing with your cash," he said. Buffett, in his treatise, made the basic argument that Berkshire has always prioritized using cash to expand its businesses and will continue to do so, particularly if it can find blockbuster deals like the BNSF railroad. "I have made plenty of mistakes in acquisitions and will make more. Overall, however, our record is satisfactory, which means that our shareholders are far wealthier today than they would be if the funds we used for acquisitions had instead been devoted to share repurchases or dividends," he wrote. Buffett is asked every year at Berkshire's annual meeting in Omaha about a payout, and most investors have been content to accept his reasoning against one. Smead said he understood Buffett's position but said his philosophy was easier said than followed for most of the investing public. "I'm a long-term Buffett fan and I don't agree because I know what happens in the lives of most investors and most investors need some cash flow from these wonderful companies that they own," he said. PROFIT UP ON DERIVATIVES Berkshire also reported earnings on Friday, posting a larger fourth-quarter profit on derivative gains. The company posted a profit of $4.56 billion, or $2,757 per Class A share, compared with a profit of $3.05 billion or $1,846 per Class A share, a year earlier. Year-end book value, Buffett's preferred measure of the stock's worth, rose 14 percent to $114,214 per share. Earnings were boosted by $1.4 billion in derivative gains during the quarter. Berkshire has in the past sold derivatives to provide credit protection on corporate bonds, and also long-term puts on international stock indexes. Buffett said Friday that Berkshire continues to wind down that portion of its portfolio, given an aversion to posting collateral if it took on new risks. Berkshire reported 15 common stock investments that were worth $1 billion or more at year's end. For the first time, this year's list includes not only purchases by Buffett, but by Todd Combs and Ted Weschler, the investment managers Buffett brought in to help oversee Berkshire's portfolio. Their one investment that met the threshold was the satellite TV operator DirecTV. Each man is now managing about $5 billion, Buffett said Friday. "Todd and Ted are young and will be around to manage Berkshire's massive portfolio long after Charlie and I have left the scene. You can rest easy when they take over," he wrote. - Reuters
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| Yahoo to shut down seven products, including Blackberry app Posted: 02 Mar 2013 05:18 AM PST SAN FRANCISCO: Yahoo Inc is shutting down seven products, including its mobile app for Blackberry smartphones, as new Chief Executive Marissa Mayer takes a page from Google Inc's play book by eliminating unsuccessful products en-masse. The product shutdowns, which Yahoo announced on its official company blog on Friday, are part of what the company said are regular efforts to evaluate and review its product line-up. "The most critical question we ask is whether the experience is truly a daily habit that still resonates for all of you today," wrote Jay Rossiter, Yahoo's executive vice president of Platforms. The announcement represents Yahoo's second group shutdown of products since Mayer, a former Google executive, became CEO of the struggling Web portal in July. So-called "spring cleaning" announcements, in which multiple products are shut down, have become a regular feature at Google in recent years. Mayer signaled the company would prune its line-up of mobile apps at an investor conference last month, noting that Yahoo would reduce the 60 to 75 disparate mobile apps it currently has to a more manageable 12 to 15 apps. Yahoo said its app for Blackberry smartphones would no longer be available for download, or supported by Yahoo, as of April 1. Yahoo also said that on April 1 it will stop supporting Yahoo Avatars - the cartoon-like digital characters that consumers create to depict them on Web services such as Yahoo instant messenger and Facebook. Consumers who want to continue using their avatar on Yahoo's online services must download the avatar and then re-upload the information to their personalized Yahoo profile. The other Yahoo products set to be terminated include Yahoo App Search, Yahoo Sports IQ, Yahoo Clues, the Yahoo Message Boards website and the Yahoo Updates API. - Reuters
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| With record highs in sight, US stocks face roadblocks Posted: 02 Mar 2013 05:15 AM PST NEW YORK: If Wall Street needs to climb a wall of worry, it will have plenty of opportunity next week. Major U.S. stock indexes will make another attempt at reaching all-time records, but the fitful pace that has dominated trading is likely to continue. Next Friday's unemployment report and the hefty spending cuts that look like they about to take effect will be at the forefront. The importance of whether equities can reach and sustain those highs is more than Wall Street's usual fixation on numbers with psychological significance. Breaking through to uncharted territory is seen as a test of investors' faith in the rally. "It's very significant," said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama. "The thinking is, there's just not enough there for an extended bull run," he said. "If we do break through (record highs), then maybe the charts and price action are telling us there's something better ahead." Flare-ups in the euro zone's sovereign debt crisis and next Friday's report on the U.S. labor market could jostle the market, though U.S. job indicators have generally been trending in a positive direction. Small- and mid-cap stocks hit lifetime highs in February. Now the Dow Jones industrial average <.dji> and the S&P 500 <.spx> are racing each other to the top. The Dow, made up of 30 stocks, is about 75 points - less than 1 percent - away from its record close of 14,164.53, which it hit on October 9, 2007. The broader S&P is still 3 percent away from its closing high of 1,565.15, also reached on October 9, 2007. The advantage may be in the Dow's court. So far in 2013, it has gained 7.5 percent, beating the S&P 500 by about 1 percent. THE RALLY AND THE REALITY CHECK The Dow's relative strength owes much to its unique make-up and calculation, as well as to investors' recent preference for buying value stocks likely to generate steady reliable gains, rather than growth stocks. But the more defensive stance illustrates how stock buyers are getting concerned about this year's rally. While investors don't want to miss out on gains, they're picking up companies that are less likely to decline as much as high-flying names - if a market correction comes. The Russell Value Index <.rav> is up 7.6 percent for the year so far, outpacing the Russell Growth Index's <.rag> 5.7 percent rise. Within the realm of the S&P 500, the consumer staples sector led the market in February, gaining 3.1 percent. There is some concern that growth-oriented names are being eclipsed by defensive bets, said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati. "This isn't a be-all and end-all sell signal by any means, but we would feel much more comfortable if some of the more aggressive areas, like technology and small caps, would start to gain some leadership here," Detrick said. Signs that investors are becoming concerned about the rally's pace is evident in the options market, where the ratio of put activity to call activity has recently shifted in favor of puts, which represent expectations for a stock to fall. "We are seeing some put hedging in the financials, building up for the past month," said Henry Schwartz, president of options analytics firm Trade Alert in New York. The put-to-call ratio representing an aggregate of about 562 financial stocks is 1:1, when normally, calls should be outnumbering puts. Investors have no shortage of reasons to crave the relative safety of blue chips and defensive stocks. Although markets have mostly looked past uncertainty over Washington's plans to cut the deficit, fiscal policy negotiations still pose a risk to equities. The $85 billion in spending cuts set to begin on Friday is expected to slow economic growth this year if policymakers do not reach a new deal. Markets so far have held firm despite the wrangling in Washington, but tangible economic effects could pinch stock prices going forward. The International Monetary Fund warned that full implementation of the cuts would probably take at least 0.5 percentage point off U.S. growth this year. EASY MONEY AND TEPID HIRING Investors will also take in a round of economic data at a time when concerns are percolating that the market is being pushed up less by fundamentals and more by loose monetary policy around the world. The main economic event will be Friday's non-farm payrolls report for February. The U.S. economy is expected to have added 160,000 jobs last month, only a tad higher than in January, in a sign the labor market is healing at a slow pace. The U.S. unemployment rate is forecast to hold steady at 7.9 percent. While lackluster data has been a catalyst in the past for stock market gains as investors bet it would ensure continued stimulus from the Federal Reserve, that sentiment may be wearing thin. Markets stumbled last week following worries that the Fed might wind down its quantitative easing program sooner than expected. "It shows the underpinning of the market is being driven at this point by monetary policy," Hellwig said. With investors questioning what is behind the rally, it will make a run to record highs even more significant, Hellwig added. "There's smart people that are in the bull camp and the bear camp and the muddle-through camp," Hellwig said. "The fact that you can statistically, using historical evidence, make a case for going higher, lower, or staying the same makes this number very important this time around." - Reuters |
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