Finding the Once and Future Berkshire Hathaway Inc. (BRK.A)

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If there is a Holy Grail in stock investing, it’s Berkshire Hathaway Inc. (NYSE:BRK.A). If there’s a Merlin in the investing world, it’s Warren Buffett.  If, a few decades ago, you threw some money behind Buffett’s Berkshire Hathaway, you would be Camelot-style rich, which is much richer than even Gangnam-style rich.  And while we may have missed the bulk of Berkshire Hathaway’s dramatic rise to the top of the world’s blue-ribbon investments, there’s no reason that we can’t do a thought experiment to find the next Berkshire Hathaway Inc. (NYSE:BRK.A).  And, maybe, just maybe, Berkshire Hathaway is still the next Berkshire Hathaway.

Berkshire Hathaway Inc. (NYSE:BRK.A)

To investigate, we’ll look at stocks with a healthy price-to-book ratio. The price-to-book ratio is a key indicator that Buffett’s Columbia University finance professor, and famed investor, Benjamin Graham, believed could help an investor uncover stocks of good companies that were selling under their fair value.

To find book value, you take the total assets of a company and then subtract its intangible assets. Graham believed that a low (but not too low) price-to-book reveals a company with a low investment cost, but a strong potential to increase in value. Graham advised Buffett and his students to look for companies with a P/E of under 15, and a book ratio under 1.5.  Let’s see how our next Berkshire Hathaway Inc. (NYSE:BRK.A) do:

Does Buffett still have it?

Legend has it that Buffett is the only student to earn an A+ in Graham’s rigorous class on security analysis. The fact that Buffett’s own Berkshire Hathaway has a recent price-to-book of 1.28 might earn another A+ from his old college professor. That figure is below the 1.5 book ratio that Graham suggested as the optimal level of book value. I should point out that the industry average is 1.68, so Berkshire Hathaway still leads the pack in maintaining an enviable price-to-book.

Graham might need to get out the red pen for P/E, though. Berkshire Hathway’s P/E is a little high at 17. Come on Buffett: crack those books.  The BRK-B share is currently trading in the $100 range.The A-class , is in the $152,000 range.

The great white mountain way

The success of Berkshire Hathaway Inc. (NYSE:BRK.A) has influenced the management teams of many companies in dozens of different industries. White Mountain Insurance Group aspires to be in that elite class. As a property and casualty insurance company and re insurer, it tries to invest wisely, squeezing each percentage point of return and weighing each percentage point of loss in risk.

The company’s price-to-book is below 1.  At the time of my research, it was actually .98. So, if 1.5 is good, and a lower price-to-book is what we’re looking for, then White Mountain’s (NYSE:WTM) very low price-to-book must signal that the company is the next Berkshire Hathaway, right? Unfortunately — a word of warning — if a price-to-book is too low, that may signal that the business is weakening, according to a lot of financial experts. A .98 is not in the red zone, but it’s getting there.  The P/E is above 18, which is also a little high for Graham and Buffett’s liking.

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