Below the book value of the Berkshire Hathaway fund

Berkshire Hathaway

shows his Benjamin Graham roots with the recent purchase of 2 stocks which are now trading below book value. This is exactly the kind of metric favored by the late Columbia University business professor who mentored Warren Buffett long ago.

Graham loved “the book below” along with other key financial features which can all be found in his long and tedious classic security analysis and his short and readable The Smart Investor.

The highly watched and widely followed investment firm of Buffett and Munger recently bought Citigroup

and primordial

Entertainment. Berkshire Hathaway’s largest positions remain in stocks trading well above their book value, such as Apple

and Kroger

, so they find other reasons to put money into certain types of stocks. That’s why it’s interesting to see the “below book value” measure reused when it comes to adding positions.


This is the classic situation for value stocks and in one of Warren Buffett’s all-time favorite sectors: financials. The New York monster bank is available for purchase at a hefty 41% discount to its book value.

Maybe some investors are worried that the bank’s long-term debt will exceed equity, but highly educated folks in Omaha should understand that’s not really a big deal considering other factors.

Citigroup trades with a price-earnings ratio of 6.32, well below that of the S&P 500 and low even for the financial sector in general. This year, earnings are up 114% and the EPS growth record of the last 5 years is stable at 16.40%.

The bank also pays a decent dividend: 3.80% yield.

Global Paramount.

The ‘entertainment’ company is behind the new Tom Cruise movie hitting theaters now, a revival of the 1980s hit Top Gun. It is highly unlikely that Berkshire Hathaway bought shares in the company for this reason.

Paramount is trading at a 3% discount to its book value with an unusually low price-to-earnings ratio of just 5.96. The company’s earnings this year are up 77.50% and the EPS growth rate over the last 5 years is 13.80%. This is another situation where long term debt is greater than shareholder value and again you have to understand that Buffet,

Munger and his team concluded that it didn’t matter much considering everything. The long-term view of the investment firm is undoubtedly a factor. The 9.48% float short indicates skepticism about Paramount’s outlook – if these shorts are ever forced to cover, it could fuel a whole rally. Investors receive a dividend of 2.83%.

Incidentally, these aren’t the only “below book value” stocks held by Berkshire Hathaway. These 2 are just the new additions in this category. Other discount-to-book stocks already in the portfolio include some of the oldest and best-known brands in business.

General Engines

is here, now at 91% of the book, just like Kraft-Heinzreturning to a 7% discount to its book value after a recent selloff that took the price down from 44 to 36 before bouncing back a bit.

My website is right here:

Good dealsCheap Stocks – Find the Most Undervalued Stocks on Wall Street

No investment advice. For educational purposes only.

About Robert Wright

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