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Reasons To Be Bearish On Berkshire Hathaway Inc. (BRK.B)

Its Latin American focus faces other risks. The company has been pushing this business, growing it from 15% of revenues in 2010 to 20% in 2012, but it is exposed to potential economic and political turbulence. As the company’s product is priced at a premium in relatively poor countries, economic difficulties can easily disrupt growth plans. Political instability and unexpected regulation are also well-recognized problems in countries like Venezuela and Argentina, which DIRECTV relies on.

Given the rapid change in the fundamentals of DIRECTV’s domestic market and the potential lack of stability in its Latin American operations, anticipating what the business might look like in five years seems very problematic.

Davita has its own fundamental risks. The company is a medical service provider operating a U.S-based dialysis business that accounts for roughly 68% of revenue. Davita expanded its offering with a mostly debt-financed $4 billion acquisition of Healthcare Partners, a medical provider and physician organization, in late 2012.

Besides healthcare regulatory issues, the company faces significant government based payment risk. With over 66% of their dialysis revenue coming from government entities and 60% of Healthcare Partners reimbursement from senior care, Davita looks highly reliant on administratively mandated fees.

It would seem that looking five years out, with governmental budget issues and an increasing healthcare burden, the company’s reimbursement environment appears murky at best.

DIRECTV and Davita are not necessarily bad investments, but their large position in Berkshire’s portfolio seems to indicate that the scope of acceptable equity risk has been expanded.

Conclusion

There are reasons to be bearish on Berkshire Hathaway Inc. (NYSE:BRK-B) stock, and its optimistic valuation and increased risk profile may be the most persuasive. Though finding a pessimistic view is rare, investors may find it prudent to at least consider any potential downside.

The article Reasons To Be Bearish On Berkshire Hathaway originally appeared on Fool.com and is written by Bob Chandler.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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