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Below Book Value In The Berkshire Hathaway Fund

Berkshire Hathaway

is showing its Benjamin Graham roots with the recent purchase of 2 stocks now trading below book value. That’s just the sort of metric most preferred by the late Columbia University business professor who mentored Warren Buffett long ago.

Graham liked “below book” along with other key financial characteristics all of which can be found in his long and tedious classic Security Analysis and in his short and readable The Intelligent Investor.

Buffett and Munger’s hugely watched and widely followed investment firm recently purchased Citigroup

and Paramount

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

and Kroger

, so they find other reasons to place money in certain kinds of stocks. That’s why it’s interesting to see the “below book value” metric back in use when it comes to adding positions.


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

Maybe some investors are worried that the bank’s long-term debt exceeds shareholder equity but the highly-educated folks in Omaha must figure it’s not really that big of a deal considering other factors.

Citigroup trades with a price-earnings ratio of 6.32, much lower that that of the S&P 500 and low even for the financial sector in general. Earnings this year are up by 114% and the EPS growth record for the past 5 years is a steady 16.40%.

The bank pays a decent dividend, too: 3.80% yield.

Paramount Global.

The “entertainment” company is behind the new released Tom Cruise film now hitting theaters, a re-tread of the 1980’s hit Top Gun. It’s highly unlikely that Berkshire Hathaway bought shares in the company for just that reason.

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

Munger and crew have concluded it doesn’t matter that much considering everything. The long-term view of the investment firm is a factor, no doubt. The short float of 9.48% indicates skepticism about Paramount’s prospects – if those shorts are ever forced to cover that might be fuel for quite a rally. Investors are being paid a 2.83% dividend.

By the way, these aren’t the only “below book value” stocks owned by Berkshire Hathaway. These 2 are just the new additions in that category. Other disount-from-book equities already in the portfolio include some of the oldest, best known brand names in business.

General Motors

is in there, now at 91% of book, and so is Kraft-Heinz, back down to a 7% discount from its book value after a recent sell-off that took the price from 44 to 36 before bouncing a little.

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Not investment advice. For educational purposes only.