Buffett bullish on US, Berkshire, buys back shares even as pandemic hits earnings

(Reuters) – Warren Buffett’s enthusiasm for the future of America and his company Berkshire Hathaway Inc has not been dampened by the coronavirus pandemic.

Buffett used his annual letter to investors to assure him that he and his successors would be careful stewards of their money in Berkshire, where “the passage of time” and “an inner calm” would help them well.

Despite the disappearance of more than 31,000 jobs from Berkshire’s workforce last year, Buffett has maintained his trademark optimism, buying back a record $ 24.7 billion of his shares in 2020, a sign he considers undervalued.

He also praised the economy’s ability to withstand “serious disruptions” and to benefit from “breathtaking” progress.

“Our unshakeable conclusion: never bet against America,” he said. ((here))

Tom Russo, partner at Gardner, Russo & Gardner in Lancaster, Pa. And long-time investor in Berkshire, said: “He believes deeply in his business and in his country.”

The letter breaks an unusual silence for Buffett, 90, who has been almost completely invisible to the public since the Berkshire annual meeting last May.

But while touching on familiar themes, including the greed of Wall Street bankers for trading fees that benefit them more than the companies they represent, Buffett did not dwell on the pandemic, a primary factor. behind Berkshire’s job losses.

He also did not address the recent social upheavals or the divisive political environment that some companies are now tackling more directly.

“The letter underscored the innovation and values ​​that have become America’s backbone, and that’s perfectly acceptable,” said Cathy Seifert, analyst at CFRA Research with a “hold” rating on Berkshire.

“Given the reverence investors have for him, the letter was striking for what it left out,” she added. “A new generation of investors demands a certain degree of social conscience and that companies like Berkshire articulate their beliefs, standards and goals.”

Buffett also signaled a long-term commitment to Apple Inc, where Berkshire ended 2020 with $ 120.4 billion in shares despite the recent sale of several billion more dollars.

He called Apple and the BNSF Railroad Berkshire’s most valuable assets – “it’s pretty much a toss-up” – other than its insurance operations, and ahead of Berkshire Hathaway Energy. “The jewels of the family,” he called these four investments.

PROFIT INCREASES EVEN AS JOBS ARE LOST

Berkshire also reported on Saturday net income of $ 35.84 billion in the fourth quarter and $ 42.52 billion for the year, both reflecting large gains on its shares.

Operating profit, which Buffett considers a more accurate measure of performance, fell 9% for the year to $ 21.92 billion.

Share buybacks continued in 2021, with Berkshire repurchasing more than $ 4 billion of its own shares. He ended 2020 with $ 138.3 billion in cash.

However, Buffett lamented fixed income as an investment, saying “bonds are not the place to be these days.” The income on a 10-year US Treasury bill fell 94%, from a yield of 15.8% in September 1981 to 0.93% at the end of 2020. The yields on US Treasuries of benchmarks have since jumped, but remain low compared to historical measures.

“Fixed income investors around the world – whether they are pension funds, insurance companies or retirees – face a bleak future,” the letter said.

Berkshire, based in Omaha, Nebraska, has more than 90 business units, including the BNSF railroad, auto insurer Geico, Dairy Queen ice cream and See’s candy.

Its workforce was down 8% from the previous year to approximately 360,000 employees. Larger declines were reported at the BNSF, which cut 5,600 jobs, and at See’s, where employment fell 16%.

The pandemic has not hit any Berkshire company harder than Precision Castparts Corp, which has lost 13,473, or 40%, of its jobs.

Berkshire bought the aircraft and industrial parts maker in 2016 for $ 32.1 billion, Buffett’s largest acquisition, and took $ 9.8 billion in depreciation as the pandemic decimated travel and punished Precision’s aerospace customers.

“I paid too much for the business,” Buffett wrote. “I was just too optimistic about PCC’s normalized profit potential.

“CCP is far from my first such mistake,” he said. “But that’s a big deal.”

Berkshire said some companies were starting to recover from the pandemic.

“Certainly 2021 will be a much stronger year, dependent on the speed of vaccinations and the opening of the US economy,” Jim Shanahan, analyst at Edward Jones & Co said with a “buy” rating on Berkshire.

Buffett also said Berkshire’s annual meeting will be held in Los Angeles rather than Omaha, allowing 97-year-old vice president Charlie Munger, a Californian, to join him and answer around 3.5 hours of questions. shareholders.

Vice Presidents Greg Abel, 58, and Ajit Jain, 69, who are widely seen as pioneers to succeed Buffett as chief executive, will also be available to answer questions.

Buffett said he hopes Berkshire will resume in 2022 its annual Shareholders’ Weekend in Omaha, which normally attracts around 40,000 people – an “annual meeting honest to God, Berkshire style,” he said. written.