Warren Buffett still wants deals but can’t find any lucrative deals

He blames continued low interest rates for helping to drive up the prices of stocks and entire companies alike, and in the past he has said that increased competition from private equity buyers has also made finding good deals difficult.

“At times, such possibilities are both numerous and frankly attractive. Today, however, we find little that excites us,” Buffett wrote of the prospects of finding good stock investments.

While Berkshire has focused on growing the 90-odd businesses, the Omaha, Nebraska-based conglomerate already owns and is repurchasing its shares — something Buffett has invested $51.7 billion in over the past two years. Including $27 billion last year. But the pace of buybacks may be a bit slow as Berkshire has only bought $1.2 billion of its own shares so far this year.

Berkshire’s companies generate about $7 billion in cash every quarter, not enough to meaningfully reduce the repurchase cash pile. And Buffett said he’ll always have at least $30 billion on hand to make sure Berkshire can cover any catastrophic claims on insurance policies written by its companies.

Buffett’s letter is always well read in the business world due to his remarkably successful track record, but he kept his message focused on Berkshire’s businesses and did not mention politics or say much about the broader economy.

He did not provide any new details about Berkshire’s succession plan in his first letter since last spring that Berkshire Vice President Greg Abel would one day replace him as CEO, although Buffett, 91, has no plans to retire. . Buffett only confirmed that plan when his business partner Charlie Munger slipped in and hinted at it during last year’s annual meeting.

“I felt like there was an opportunity for Buffett to formalize something here and comment about Abel’s qualifications or whether shareholders and investors should trust that he was the right candidate. There could have been more commentary around this,” said Edward Jones. said analyst Jim Shanahan.

Investor Bill Smed said Buffett did not give much room in his letter to warn people about foolish behavior as he has often done in the past.

“It seems like in the last two or three years of letters and annual meetings, they didn’t say much more than what they did,” Smed said.

But Buffett cautions investors to be careful when reading other companies’ financial reports to make sure they are accounting for all of their costs when reporting their earnings.

Buffett wrote, “Deceptive ‘adjustments’ to earnings – to use a polite description – have become both more frequent and more fictitious as stocks rise. Speaking less politely, I would say that the bull market blew. Bullocks breed…”.

Despite a lack of acquisitions and new investment, Berkshire has continued to make gains as the economy rebounds from the depths of the pandemic. The company reported making $39.6 billion, or $26,690 per Class A share, during the fourth quarter. That’s up from $35.8 billion a year ago, or $25,015 per Class A share.

“In 2021, most operating companies benefited from the tailwind of the economic recovery,” said CFRA Research Analyst Cathy Seifert.

But those bottom line figures were fueled by paper gains on Berkshire’s investments, which is why Buffett says operating income is a better measure of a company’s performance as they exclude investments and derivatives. By that measure, Berkshire’s operating income increased from $5.02 billion, or $3,224.74 per Class A share, to $7.3 billion, or $4,904.23 per Class A share, during the fourth quarter.

Four analysts surveyed by FactSet expect Berkshire to report operating income of $4,197.84 per Class A share in the quarter.

Buffett said the four biggest pillars of Berkshire’s business — its insurance companies, its $161 billion investment in Apple stock, the BNSF railroad and utilities collection — all helped it succeed last year. Railroads alone contributed a record $6 billion in profit last year, while utilities set their own record with a profit of $3.5 billion. And Buffett praised Apple CEO Tim Cook as a brilliant executive.

Buffett said this year Berkshire will bring back the full slate of events surrounding the company’s annual meeting, which regularly drew more than 40,000 people for the past two years before the pandemic forced it to go virtual. But anyone who wants to spend hours answering questions to Buffett at the April 30 meeting in Omaha will have to prove he has been vaccinated for COVID-19.

Berkshire owns a wide variety of companies, including BNSF, several large electric utilities, Geico Insurance, and an assortment of manufacturing and retail companies. The group has large stock investments in companies like Apple, Coca-Cola, Bank of America and others.