Berkshire Hathaway is trading at a price to book multiple that is one of the lowest in its history. This is despite the fact that it owns the Burlington Northern, one of the nation’s largest railroads with over 32,000 route miles, that shipped over 9.2 million car loads of goods and had earned $4.4 billion in operating cash flows in 2010. Then you have the huge insurance operations and MidAmerican and all their other businesses.
Berkshire had a total of $17.9 billion in operating cash flows last year. The Lubrizol acquisition will likely add another $650 million to the mix. Within a year or so, Berkshire will likely announce another mid-size or perhaps even a large acquisition. I estimate Berkshire will have about $18.9 billion in operating cash flows for 2011. At current prices, you can buy Berkshire at less than 10 times my estimate for 2011 cash flows.
To me, the price Berkshire is trading at is just crazy given the quality of the company. I think its just a matter of time before the stock price makes a new all time high. It might be two or three years and it might only happen when unemployment gets back down to seven or eight percent, but it will eventually happen. And in the meantime you have the world’s best capital allocators investing billions of cash flows for you. What a great situation!
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