We just published a copy of value investor Joseph Del Principe’s November 2019 investor letter. You can download the entire letter on our site. Here is what he said about Berkshire Hathaway (NYSE:BRK-B):
In August, international oil and gas company Occidental Petroleum Corporation (OXY) completed its acquisition of energy company Anadarko Petroleum (APC)—but not without assistance from Warren Buffett and Berkshire Hathaway. Buffett pledged to inject $10 billion into Occidental if it won the bid for Anadarko over Chevron. In return, Berkshire would receive 100,000 shares of cumulative perpetual preferred stock (valued at $100,000 each), paid out at 8%. “Cumulative preferred stock” means that any past dividends that were not paid out previously will be paid to Berkshire and other cumulative preferred shareholders first. “Perpetual,” of course, means the dividends will be paid for as long as the company exists, and in this case, at a fixed rate of 8%.
To make the deal even better for Berkshire, the company would also receive a warrant to purchase up to 80 million shares of Occidental at $62.50. A warrant provides the right to buy a share of stock at a specific price on or before a specified date. While Berkshire’s financial support certainly helped Occidental broker a favorable deal (i.e. the acquisition of Anadarko) in the short-term, Berkshire’s investment will pay off handsomely in the long run. For their one-time $10 billion investment, Berkshire will earn preferred stock dividends of $800 million annually. During the 2008 financial crisis, Berkshire made similar investments in Goldman Sachs and Bank of America. As a result, Berkshire is now the largest shareholder of Bank of America and the fourth largest shareholder of Goldman Sachs.
Here is Joseph Del Principe’s views on Brookfield Asset Management (BAM) and RenaissanceRe Holdings Ltd. (RNR):
Brookfield Asset Management owns 37% of Brookfield Business Partners (BBU), which in August agreed to acquire a controlling interest (approximately 57%) in Genworth Canada, the largest private sector residential mortgage insurer in Canada. For BBU, this is a high-value acquisition for several reasons. First, Genworth Canada is an essential service provider to the housing market in Canada. It has developed a strong marketshare through a broad underwriting and distribution platform, and there are natural barriers to entry for competitors because the industry is highly regulated. Furthermore, the company has a long track record of generating consistent earnings and attractive returns on capital, as well as a resilient risk profile thanks to a large geographic market, customer diversity, and a stable Canadian housing and mortgage sector with consistently low mortgage delinquency rates.
Headquartered in Pembroke, Bermuda, RenaissanceRe is an international provider of reinsurance and insurance products in the Property, Casualty, and Specialty segments. Our average entry point was around $130, and recently, believing the stock to be fully valued, we sold our shares at $193 for a return on investment (ROI) of 48%.
We aren’t going to comment on Berkshire Hathaway, but we are going let you know that we discovered a stock that Warren Buffett would have bought himself if he was running a much smaller fund. This stock’s market value was barely more than the cash it held and it had no debt. It also pays a nearly 3% dividend. You can find out more about this stock here.
Disclosure: None. This article is originally published at Insider Monkey.