Black Bear Value Partners, an investment management firm, published its “Black Bear Value Fund” second-quarter 2022 investor letter – a copy of which can be downloaded here. The Black Bear Value Fund, LP (the “Fund”) returned –6.7% in June and –2.7% YTD. If a downturn is going to permanently impair a business, it’s typically not a fit for this Fund. Go over the fund’s top 5 positions to have a glimpse of its finest picks for 2022.
In its Q2 2022 investor letter, Black Bear Value Fund mentioned Berkshire Hathaway Inc. (NYSE:BRK-A) and explained its insights for the company. Founded in 1839, Berkshire Hathaway Inc. (NYSE:BRK-A) is an Omaha, Nebraska-based multinational conglomerate company with a $630.7 billion market capitalization. Berkshire Hathaway Inc. (NYSE:BRK-A) delivered a -4.76% return since the beginning of the year, while its 12-month returns are up by 2.18%. The stock closed at $429,200.00 per share on July 20, 2022.
Here is what Black Bear Value Fund has to say about Berkshire Hathaway Inc. (NYSE:BRK-A) in its Q2 2022 investor letter:
“Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B)
Below is the rough Berkshire on-a-napkin valuation from Q1 with the month-end price reflecting a bigger discount to fair value. Again, this is a rough exercise to sanity check our assumptions.
Cash of ~$103,000 per class A Share (vs. $104k 1 year ago)
Down/Base/Up marks cash at book value to an 8% premium (vs. to 10% a year ago)
Investments based on December prices ~$248,000 per class A share (vs. $194k a year ago)
Presume a range of stock prices that result in:
Down = $149,000 per class A share (-40%- assumes portfolio is overpriced)
Base = $211,000 per class A share (-15% – assumes portfolio is overpriced)
Up = $285,000 per class A share (+15%)
Operating businesses that should generate ~$17,000 of pre-tax income per Class A share (vs. $15k)
Down = 9x = $153,000 per share – equates to ~8% FCF yield
Base = 12x = $204,000 – equates to ~6% FCF yield
Up = 12x = $204,000 – equates to ~6% FCF yield
Overall (vs. $409,000 at quarter end)
Down = $413,000 (+1%)
Base = $526,000 (+29%)
Up = $600,000 (47% underpriced)
Going forward I expect Berkshire to compound at above average returns from this price.
BRK is a collection of high-quality businesses, excellent management, and a good amount of optionality in their cash position. If the cash were to be deployed accretively the true value would be greater than an 8% premium (as mentioned above). The combination of a pie that is growing, an increasing share of said pie due to stock buybacks, upside optionality from cash and a tight range of likely business outcomes that span a variety of economic futures gives me comfort in continuing to own Berkshire.”
Today Berkshire shares trade at $442K and they returned more than 3% since the publication of Black Bear’s investment thesis.
Our calculations show that Berkshire Hathaway Inc. (NYSE:BRK-A) ranks 14th on our list of the 30 Most Popular Stocks Among Hedge Funds. Berkshire Hathaway Inc. (NYSE:BRK-A) was in 104 hedge fund portfolios at the end of the second quarter of 2022, compared to 108 funds in the previous quarter. Berkshire Hathaway Inc. (NYSE:BRK-A) delivered a -17.92% return in the past 3 months.
In July 2022, we also shared another hedge fund’s views on Berkshire Hathaway Inc. (NYSE:BRK-A) in another article. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q2 page.
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Disclosure: None. This article is originally published at Insider Monkey.
