For one thing, healthy companies rarely agree to be bought out without some sort of shareholder premium. For another, NV Energy will be integrated with Berkshire’s existing electricity generator, MidAmerican Energy. While a 20%-plus premium to the company’s prior market price may be steep for NV Energy as a stand-alone business, with the economies of scale and overhead cost savings from the integration, it seems to make sense as a bolt-on.
Make thinking part of your investing
The Zacks pronouncement that NV Energy is a “strong buy” wouldn’t have been a bad call prior to the Berkshire Hathaway acquisition announcement. Indeed, NV Energy was a selection for the real-money Inflation-Protected Income Growth portfolio back in December — months before Berkshire Hathaway announced its deal — as I saw the potential for growth in the Nevada electricity market.
As a result, the iPIG portfolio got the benefit of the substantial acquisition premium that Berkshire Hathaway is paying for NV Energy — a premium that Zacks’ “strong buy” devotees won’t get. Of course, not every iPIG selection will likely turn out as well as NV Energy is expected to. Still, the portfolio’s selection criteria of growing and covered dividends, healthy balance sheets, and reasonable valuations should help assure that the portfolio gets a decent share of upside surprises.
It didn’t take rocket science to find NV Energy, Inc. (NYSE:NVE) prior to Berkshire Hathaway Inc. (NYSE:BRK.A)’s bid for the company. But it did take a willingness to think about what key characteristics would make the company a decent investment, and then the commitment to invest real money when the company passed those tests. That’s what we did at the iPIG portfolio, and that’s why we got the returns that those following Zacks’ “strong buy” on the stock won’t.
The article Where Human Brains Still Beat Computer Algorithms originally appeared on Fool.com and is written by Chuck Saletta.
Motley Fool contributor Chuck Saletta owns shares of NV Energy. The Motley Fool recommends and owns shares of Berkshire Hathaway.
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