Tag Archives: BRK.B

$BRK.B,Berkshire Hathaway B

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Behind BNSF Railway’s Double-Digit Volume Rise in Week 19

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Week 19: Except in Mexico, North American Rail Traffic Rose PART 8 OF 16

BNSF Railway’s carloads

BNSF Railway (BRK-B) operates in the Western United States and competes primarily with Union Pacific (UNP). Its total railcars for the week ended May 13, 2017, rose 11.6% YoY (year-over-year) to 90,000 units, compared to ~81,000 units in the corresponding week of 2016.

Its carloads other than coal and coke rose 12.7% YoY to ~60,000 units in the week ended May 13, 2017. The rise in BNSF Railway’s overall carloads was higher than the overall rise reported by US railroad companies.

Behind BNSF Railway’s Double-Digit Volume Rise in Week 19

Coal’s importance to BNSF

BNSF Railway saw its coal and coke freight volumes rise 9.5% YoY in the 19th week of 2017, lower than the rise reported by rival UNP. Coal transportation accounts for nearly 21.0% of BNSF’s total freight revenue.

About 90.0% of BNSF’s coal originates from the Powder River Basin in Wyoming and Montana. Major coal producers operating in the area include Alpha Natural Resources (ANR) and Peabody Energy (BTU). Environmental concerns and competition from natural gas (UGAZ) hampered incremental coal shipment prospects for coal producers (ARLP) in 2016.

Commodity groups

The commodities that rose in the week ended May 13, 2017, were the following:

  • grain
  • food
  • sand and gravel
  • metal
  • motor vehicles

The main falling commodity groups were:

  • petroleum
  • forest products
  • stone clay and glass
  • pulp and paper

In the next article, we’ll look at BNSF Railway’s intermodal traffic in the week ended May 13, 2017.






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3 Value Stocks for Retirement

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With the market at an all-time high, eight full years into what’s been one of the longest bull markets in history, having a few value stocks in one’s portfolio might just be more important than ever — particularly for retirees. More specifically, Archer Daniels Midland (NYSE:ADM), Philips 66 (NYSE:PSX), and Warren Buffett’s Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) appear to be interesting choices.

Three of our Fools break down the details on these great picks to get retirees — or any investor digging for value in today’s sky-high stock market — started today. 

A stock price chart going up through time, superimposed over a digital stock price board

Image Source: Getty Images. 

Turning agricultural products into gold

Sean O’Reilly (Archer Daniels Midland): My pick for the ideal value stock as part of a retirement portfolio, Archer Daniels Midland, has a great deal to offer any Foolish investor. It boasts a forward P/E ratio of just 15, and earnings per share are expected to grow to $3.37 on average by fiscal 2020, according to analysts polled by S&P Global Market Intelligence. The company is a bastion of value in a world where the forward P/E ratio of the S&P 500 index is 24.

Founded in 1898 as a milling company in Minneapolis, Archer Daniels Midland is an agricultural-products powerhouse. Today, it’s a modern commodity operator, offering everything from oilseeds, corn, and rice for food manufacturing to ingredients for animal feed and cotton pulp for paper manufacturing. The company made a big move with its $3 billion acquisition of German natural-ingredients company Wild Flavors in 2014, pushing itself further into the increasingly important business of natural flavors, proteins, and health products.

The company is a prime example of sound financial management and execution. It generated $957 million of free cash flow in the 12 months ended March 31, up significantly from $593 million in fiscal 2016. In the company’s Q1 earnings press release, CEO Juan Luciano touched on the reason for the improvement:

We are continuing to execute the long-term strategic plan that we launched in 2012, and we are seeing the results. We have strengthened our core, improving our cost positions and implementing measures to improve results where necessary. Our operational-excellence initiatives have delivered significant savings and efficiencies. And we continue to grow strategically by expanding into new geographies and increasing our capabilities in food, beverage, and feed. Those actions contributed to the improved results we saw in the first quarter despite muted margin environments in some businesses. The continued momentum in the execution of our plan gives us confidence that we will deliver sustainable value creation.

This is a rock-solid business sporting a low valuation compared with the rest of the market, all while it generates plenty of cash to do things like expand the business and maintain its healthy 3% dividend yield. For retired value investors, there’s a lot to love.

A cheap dividend growth stock hiding in plain sight

Jason Hall (Phillips 66): Shares of Phillips 66 are trading a little above one-year lows, down more than 10% since the start of the year. At the same time, the company has seen its earnings fall sharply over the past couple of years, as refining margins have been squeezed by falling crude prices around the world. This situation has the company trading at more than 24 times the past year’s earnings, a number that’s not cheap by any stretch of the imagination.

But now’s a bad time to evaluate Phillips 66 based on last year’s earnings — especially after the results the company posted to start the year. Not only was this a solid quarter for the company’s refining business, which reported a near tripling of its profits year over year, but the midstream and chemicals segments also reported profit growth on both a GAAP and adjusted basis. All told, quarterly profit increased 40% year over year, and 267% sequentially. With the growth of its midstream and chemicals segments combining with an expected bounce-back in refinings, full-year profits are on track to come in well above last year’s levels, and that makes Phillips 66 cheap, trading at 12 times projected 2017 earnings. 

Furthermore, the company’s management is relentlessly focused on using cash flow growth to fund regular dividend increases. The company just announced an 11% dividend raise, putting the yield at 3.6% at recent prices. Since 2012, the company has increased its dividend 350%. 

Put it all together, and Phillips 66 is a dividend growth stock at a bargain price. That’s ideal for retirement investors. 

Trust the best in the world to help you beat the market

Steve Symington (Berkshire Hathaway): Normally I favor dividend-paying stocks for retired investors, so it might be a surprise that I’m arguing for Berkshire Hathaway as a compelling buy. As fellow Fool Matthew Frankel pointed out recently, though renowned value investor and Berkshire CEO Warren Buffett loves to pack his company’s enviable portfolio full of generous dividend payers, he has famously shunned the prospect of his company paying a dividend. Instead, Buffett has consistently demonstrated his unrivaled ability to compound shareholder value by reinvesting in Berkshire’s existing businesses, acquiring new businesses, or buying back Berkshire Hathaway shares. On the latter, Buffett has historically preferred to buy back shares only if Berkshire Hathaway stock falls below 1.2 times book value — an exceedingly attractive price for a business of this caliber.

But at Berkshire’s recent annual shareholder meeting, Buffett surprised investors by hinting that the company may consider initiating a dividend if it can’t find a better way to put some of its roughly $80 billion in cash, cash equivalents, and Treasury bills to work. In addition, Berkshire is looking at whether to raise its acceptable buyback floor to a slightly higher but still attractive level. Either way, trying to find the best way to put all of Berkshire Hathaway’s money to work is an enviable problem to have. And with Berkshire Hathaway stock currently trading at a reasonable 1.37 times book value as of this writing, I think retired investors would do well to pick up shares and trust Warren Buffett to extend his market-beating ways. 

Jason Hall owns shares of Berkshire Hathaway (B shares) and Phillips 66. Sean O’Reilly has no position in any stocks mentioned. Steve Symington has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.






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Unpacking Union Pacific’s Week 19 Intermodal Volumes

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Week 19: Except in Mexico, North American Rail Traffic Rose PART 7 OF 16

Union Pacific’s intermodal volumes

In the week ended May 13, 2017, Union Pacific (UNP) hauled ~73,000 containers and trailers, 2.2% more than it did in the corresponding week of 2016. Union Pacific’s overall freight rail traffic is trending lower than the industry’s metrics. In terms of volumes, Union Pacific is lagging behind its close competitor BNSF Railway (BRK-B).

Union Pacific’s trailer traffic rose 3.2% YoY (year-over-year) in Week 19. UNP’s intermodal volumes fell more than the overall rise reported by US railroad companies.

Unpacking Union Pacific’s Week 19 Intermodal Volumes

Union Pacific and intermodal volumes

For Class I railroad companies such as Union Pacific, intermodal growth assumed greater significance after coal headwinds made transportation unattractive. In 4Q16, Union Pacific’s intermodal volumes accounted for 38.5% of its total volumes, while its intermodal revenue contributed nearly 20.0%.

The pace of transpacific trade in the Chinese market particularly affects Union Pacific’s intermodal volumes. Other factors that affect its volumes include retail stockpiles and retail demand. Higher stockpiles and lower demand impact all railroad companies’ intermodal traffic numbers.

Railroad companies’ intermodal segments usually compete with long-haul trucking companies such as J.B. Hunt Transport Services (JBHT), Swift Transportation (SWFT), Knight Transportation (KNX), and XPO Logistics (XPO).

Investing in ETFs

Transportation sector investors may want to consider the iShares US Industrials ETF (IYJ). Major US railroad companies make up 6.2% of IYJ’s portfolio holdings.

In the next part of this series, we’ll look at the rail traffic of Union Pacific’s rival BNSF Railway.






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[$$] Berkshire Buys More Sirius and Liberty Media

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Warren Buffett’s protégé has struck again.

Ted Weschler, one of Berkshire Hathaway’s (ticker: BRK.A, BRK.B) acolytes to the Oracle of Omaha, has apparently directed the purchase of $131 million more in stocks that track Sirius XM Holdings (SIRI).

Just last month, Weschler steered Berkshire to buy nearly a quarter billion dollars of…






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Comparing Union Pacific’s Rise in Carloads with BNSF’s in Week 19

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Week 19: Except in Mexico, North American Rail Traffic Rose PART 6 OF 16

Union Pacific’s carloads

In the Western United States, Union Pacific (UNP) competes with BNSF Railway, which is owned by Berkshire Hathaway (BRK-B).

In the week ended May 13, 2017, UNP’s overall railcar volumes rose 7.4% YoY (year-over-year) to more than 90,000 units. Its railcar volumes, excluding coal and coke, rose 5.2% YoY to more than 71,000 units, compared to 68,000 units in the same week in 2016. In the week, Union Pacific’s rise in overall carloads was less than BNSF Railway’s. BNSF Railway’s percentage rise in other-than-coal carloads was more than twice UNP’s rise.

Comparing Union Pacific’s Rise in Carloads with BNSF’s in Week 19

Why coal carloads matter

In the 19th week of 2017, Union Pacific’s combined coal (ARLP) and coke carloads rose 16.3% YoY. In 4Q16, UNP witnessed a 6.0% fall in its coal revenue. However, 2017 has given Union Pacific and the entire sector some hope, given the upward momentum in coal prices. As a result, many research companies have started factoring coal growth into railroad companies’ price targets.

Coal’s (CNX) share of UNP’s total revenue totaled 14.4% in 4Q16, compared to 15.3% in the same period in 2016. UNP receives much of its coal revenue from coal shipments originating in the southern PRB (Powder River Basin).

According to the EIA (U.S. Energy Information Administration), PRB production has fallen over the past few years, mainly due to the recession and competition from natural gas. In 2016, PRB coal output fell significantly for the first time since 1998. Competition from natural gas (UGAZ), primarily resulting from reduced natural gas prices, has been one of the main factors affecting coal output recently.

Rising and falling commodity groups

Rising commodities in the week ended May 13, 2017, included the following:

  • primary forest products
  • crushed stone, gravel, and sand
  • iron and steel scrap
  • grain
  • metals and products

Commodity groups that lagged behind in the week included the following:

  • metallic ore
  • petroleum products
  • nonmetallic minerals
  • farm products

In the next article, we’ll review Union Pacific’s intermodal traffic in Week 19.






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Corvex, Starboard Poised to Profit if Kraft Heinz Buys Colgate-Palmolive

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Two big activist fund managers may be betting that Kraft Heinz wants to buy personal-care products maker Colgate-Palmolive in the not-too-distant-future.

Corvex Management’s Keith Meister and Starboard Value’s Jeff Smith accumulated about $102 million and $12 million worth of shares, respectively, in Colgate-Palmolive last quarter. Their stakes were disclosed in regulatory filings after Colgate-Palmolive CEO Ian Cook signaled earlier this month that he might be interested in selling the company for $100 a share, a 35% premium.

It’s a deal that could interest Kraft Heinz, backed by billionaire investor Warren Buffett, after its spectacular, but ultimately unsuccessful, $143 billion bid for Unilever. Buffett is a member of the Kraft Heinz board, as is 3G Capital’s Alexandre Behring.

Cook’s comments, reported by the New York Post, suggest there’s a strong possibility that a friendly deal for Colgate-Palmolive could be struck reasonably soon, said David Kass, a clinical professor at the University of Maryland’s business school who follows Buffett and his company, Berkshire Hathaway . The New York-based company could be attractive to Kraft Heinz, 3G Capital or Berkshire, Kass said.

One possibility is Buffett and 3G partnering to finance Kraft’s purchase of Colgate-Palmolive for as much as $85 billion, a premium on the company’s current $65 billion market capitalization, Kass suggested.

“It would be consolidated into Kraft-Heinz, and 3G would bring in its own management team,” Kass said. “3G Capital would want to acquire it if it felt that it wasn’t efficiently run and if they thought they could introduce efficiency.”

That theory is buoyed by the fact that Buffett and 3G have worked together before — on the purchase of Heinz, which predated its merger with Kraft. The combined company also has some synergies with Colgate-Palmolive. Colgate garners a large percentage of its sales outside the U.S., and it could use its international distribution chain as a channel for Kraft-Heinz, which has a much smaller international presence.

The merged companies would also benefit from some economies of scale with U.S. retailers that sell both Colgate’s household products and Kraft Heinz’s food and beverages.

If a friendly deal can’t be worked out, it’s possible Corvex or Starboard could agitate for one by shaking up the company’s board.

The deadline to nominate directors chosen at Colgate’s 2018 annual meeting is Feb. 11, though an activist can launch a boardroom battle earlier with a written consent solicitation. It wouldn’t be a stretch for either Starboard or Corvex to expand their stakes and attempt such a move.

Alternatively, Buffett and Berkshire Hathaway could make a play to acquire the business on their own: As of the end of December, Berkshire had $86.4 billion in cash, prompting speculation that its CEO is in the market for a deal.

If Kraft-Heinz doesn’t make a play for Colgate-Palmolive, it may make one for Mondelez International , another company that has several activist fund managers circling the wagons.

Trian Partners’ Nelson Peltz sits on the Mondelez board, which suggests that the company might become a target. Trian holds a 2.8% stake, and Bill Ackman’s activist fund Pershing Square holds 1.3% of the shares.

To avoid a takeover by Kraft Heinz, Mondelez might try to buy General Mills , the maker of Yoplait yogurt and Pillsbury Cinnamon Rolls.

The food and beverage company previously sought to buy Hershey but was rebuffed, in part because of the Hershey Trust, which held a sufficiently large stake that it needed to be convinced.

“Mondelez’s effort to buy Hershey suggests that it may be interested in buying something else as a defensive measure, so that they may be more difficult for someone like Kraft Heinz to swallow,” Kass said. “Mondelez has more international exposure than Kraft Heinz and putting the two together would open up more markets abroad, while bringing more domestic markets for Cadbury.”

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A.M. Best affirms AIG ratings after review, insurer’s stock rises

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(Adds details on A.M. Best ratings, background on AIG)

By Suzanne Barlyn

Reuters) - A.M. Best Co affirmed its financial strength rating on American International Group Inc on Tuesday, lifting some uncertainty over the New York-based insurer's ability to meet its long-term debt obligations, which had unsettled some investors." data-reactid="13">May 23 (Reuters) – A.M. Best Co affirmed its financial strength rating on American International Group Inc on Tuesday, lifting some uncertainty over the New York-based insurer’s ability to meet its long-term debt obligations, which had unsettled some investors.

AIG’s stock ticked up after A.M. Best issued its rating, ending the day up 1.3 percent.

The largest U.S. underwriter of commercial property and casualty insurance has been through a turbulent few months.

In January, it announced a deal to pay $10.2 billion to Warren Buffett’s Berkshire Hathaway Inc to take on many of its long-term commercial insurance policies, as the losses it expects to pay out on them continues to grow.

In February, AIG made a $5.6 billion addition to its reserves to cover future commercial insurance claims on policies it had already written, which led the company to report an unexpectedly large fourth quarter loss, jolting investors and AIG’s board.

In March, Chief Executive Peter Hancock, who had been under pressure from activist investor Carl Icahn since 2015, announced his resignation, even though he was only part-way through his plan to turn around the insurer’s fortunes. Earlier this month AIG named Brian Duperreault as its new CEO.

A.M. Best launched its review after AIG announced the Berkshire deal, and it has cast a shadow of the insurer for the past four months.

“We view this announcement as a positive step in AIG’s plans to improve its franchise,” wrote Barclays analyst Jay Gelb in a research note on Tuesday.

A.M. Best’s outlook for the ratings assigned to AIG is now “stable,” the specialist insurance rating firm said on Tuesday. It also affirmed ratings for AIG’s subsidiaries.

AIG’s ability to meet its long-term financial obligations is “good,” on A.M. Best’s scale, which ranges from “exceptional” to “poor.”

AIG’s appointment of the Bermuda-born Duperreault, who spent many years at the insurer earlier in his career, was a factor in the rating decision, said A.M. Best analyst Darian Ryan.

Duperreault was a protégé of long-time AIG leader Maurice “Hank” Greenberg and he went on to found and run Bermuda-based Hamilton Insurance Group Ltd.

“From this review, it has been possible to make a satisfactory assessment that AIG’s consolidated risk-adjusted capitalization remains supportive of the ratings of AIG and its subsidiaries,” Ryan wrote. (Reporting by Suzanne Barlyn; Editing by Paul Simao and Bill Rigby)






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Comparing BNSF’s Intermodal Rise with UNP’s in Week 19

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My 2014 Best Performers, Looking Ahead To 2015

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Week 19: Except in Mexico, North American Rail Traffic Rose PART 9 OF 16

BNSF Railway’s intermodal volumes

In the 19th week of 2017, BNSF Railway’s (BRK-B) overall intermodal traffic rose 6.3% YoY (year-over-year) to ~101,000 containers and trailers, compared to 95,000 containers in the corresponding week of 2016. The company’s container volumes rose 6.3% to ~91,000 containers. Its trailer volumes rose 7% YoY to ~10,000 trailers.

The rise in the company’s intermodal traffic was higher than the rise reported by US railroad companies overall. BNSF’s percentage rise in intermodal volumes was three times higher than rival Union Pacific’s (UNP).

Comparing BNSF’s Intermodal Rise with UNP’s in Week 19

Are intermodal volumes vital to BNSF?

BNSF Railway’s Consumer Products Freight segment includes domestic and international intermodal operations and automotive freight. This segment accounted for ~30% of the company’s total 2016 revenue.

It’s worth noting that BNSF Railway accounted for ~50% of Western US freight rail traffic in 2016. The company handles 1.0 million more intermodal units per year than any other Class I railroad company. Its intermodal volumes represent nearly 50% of its business portfolio.

BNSF’s intermodal competition

BNSF Railway faces tough competition from truckers such as J.B. Hunt Transport Services (JBHT) and Swift Transportation (SWFT) in the intermodal space. Intermodal volumes are impacted by seasonality, highway-to-rail conversions, and access to certain high-traffic ports.

If you’re interested in the transportation space, you may want to consider the WisdomTree Earnings 500 ETF (EPS). All US-born Class I railroad companies are included in EPS’s portfolio.

In the next article, we’ll take a look at the carloads of the smallest US Class I railroad company, Kansas City Southern (KSU).






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Canadian US Freight Rail Traffic Rose in Week 19

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Every week, the Association of American Railroads publishes North American freight rail data for the previous week. The latest figures are for Week 19, which ended on May 13, 2017.






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Jeff Bezos says he’s flattered by Warren Buffett’s compliments and reads ‘all his books’

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Warren Buffett said earlier this month that Amazon CEO Jeff Bezos is “the most remarkable business person of our age.”

At Amazon’s shareholders meeting on Tuesday, an investor reminded Bezos of that comment and asked how he comes up with new ideas.

“Warren’s remarks are very meaningful to me because he’s a hero to me,” Bezos said at the Seattle event. “I read all his books.”

Buffett’s Berkshire Hathaway doesn’t have much in common with Amazon. Berkshire tends to buy up big stakes in industrial, food and financial companies with easy-to-understand business models. He’s explicitly stayed away from Internet businesses and has publicly acknowledged missing them.

However, Buffett and Bezos are closely linked in other ways. Amazon is fourth-largest U.S. company by market capitalization with a value of $464 billion, and Berkshire is two spots behind at $407.4 billion. Berkshire is the most valuable non-tech company in the U.S.

Buffett is the third-richest person in the world with a net worth of $88 billion, and Bezos is fourth at $84 billion, according to the Bloomberg Billionaires Index.

In response to the questioner, Bezos said he looks for inventions that are going to be better for customers and that are going to be big.

“We don’t need to make sure it works, but if it works can it be big?” he said.

Bezos was also asked why he’s taking Berkshire’s approach in not splitting Amazon’s stock, which is now priced at close to $1,000.

Bezos said he has no plans to do it now, “but we do review that on a regular basis.”

Amazon did split its stock three times in the late 1990s.






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