Warren Buffett's Next Target?

Is Warren Buffett Hungry for International Power?

Warren Buffett has been busy buying stocks ! Over the last quarter Berkshire Hathaway bought a nearly $60m stake in ExxonMobil, increased its stock holding in Nestle, reduced its holdings in ConocoPhillips and Moody's and nearly doubled its holding in Wal-Mart.

It also spent around $20 billion on a train set. But there are rumors in the UK that Warren Buffett is now in the market for something to power the train set - a utility company called International Power (IPR). Mr Buffett has stated more than once that he thinks the bottom is in in the markets and that this is a good time to pick up some stocks on the cheap. International Power has certainly fallen a long way off its top back in 2007.

International Power 10 year Chart with 200 day M.A.


International Power 1 Year Chart with 200 day M.A.


According to the Daily Mail newspaper in the UK, Warren Buffett is eyeing up the electricity generator, a rumor which caused the stock price to rise 3.2p to 269.4p.

International Power has interests in more than 40 power stations in over 20 countries. It recently banked around $500 million in profit after it sold its Czech business to investment firm J&T Group. Broker Cazenove has upgraded IPR to outperform from neutral with a fair value estimate at 390p, after a positive interim management statement.

What does International Power do which would explain why Warren Buffett may be interested in it?

Well, the company is a leading independent electricity generating company with interests in over 32,000 MW (gross) of power generating capacity in 21 countries.

They use their capabilities "to successfully and profitably develop closely-linked businesses" which include:

• desalination of seawater to ensure the wholesale production of fresh water
• steam production and distribution
• district heating using cogeneration
• a small but expanding electricity retail business
• gas transportation
• open-cast coal mining
• renewable energy

One interesting point made by Neil Veitch of the Scotsman newspaper is that "As a growth business operating in a capital intensive industry, IPR requires continued access to capital to sustain its business model. Whilst the cost of financing has increased, the company has no major refinancing requirements until 2010 and is highly cash generative in the absence of further capacity additions. Currently trading on an estimated 2009 PE of 6.5x and with a dividend yield of over 5 per cent, we consider IPR to be undervalued."

So is Warren Buffett interested in International Power? Well it certainly would seem to be a plausible theory given his interest in long-term stock holdings and his views on where the economy is heading, but time alone will tell. Unless you have some information you would like to share in the comments !
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Warren Buffett BBC Video Interview

Warren Buffett On the BBC

If you had invested 10,000 USD with Warren Buffett when he started out you'd have 50 million now. He is very good at doing what he does - investing for the long-term ! In this BBC programme by Evan Davis we get an insight into how Warren Buffett runs his business and how he got to be so good at investing money on the stock market. What you see is what you get with Warren Buffett, exceot his money he won't let you get that you've got to make your own !

The actuarial calculation is that Warren Buffett has around 4000 days left on this earth - as he says in his own words.

He has no computer, no calculator and no stock ticker. He loves his house in Omaha and bought a cheap car that had tail damage because it was cheaper ! He has no desire to spend his billions - he's quite happy with his life as it is. And he runs his whole empire from the same small office he moved into in 1962 - check it out.

Warren Buffett - Evan Davis BBC Video



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Warrren Buffett Cash is Not King

Warren Buffett - The Worst is Over

Warren Buffett, who invested billions in a variety of deals as the stock market plummeted back in October 2008 and who recently made an all-in bet on the U.S. economy when he bought railroad Burlington Northern Santa Fe, said yesterday "The financial panic is behind us. The bottom has come in stocks. Don't pass on something that's attractive today." Let us hope he is right, but as the bottom was around 6800 on the DOW back in March there is no guarantee that the DOW will not fall back and get close to that bottom and Warren Buffett could still be right saying the bottom is in.

"Last fall was really blindsiding," Buffett said to students at Columbia university in New York, "still I did not worry about the overall survival of our economy."

The recession may be over, but job losses are still rising and employers shed a total of 190,000 jobs in October, the 22nd consecutive month of losses. The unemployment rate is now at 10.2%, a 26-year high.

Warren Buffett also praised the action staken by the Bush administration last September, when he said "only the government could have saved things" following the collapse of Lehman Brothers.

He added that in future "there should be more downside to the head of any institution that has to go to the federal government to be saved for reasons of the greater society. And so far, we have been better at carrots and sticks in rewarding CEOs at the top. But I think some more sticks are called for."

As for tips for the future Buffett told students to "marry the right person" and added, "The worst investment you can have is cash."

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Warren Buffett Mega Train Set Buy

Warren Buffett - Buffett Buys Himself a Mega Train Set for Christmas

We know that boys like playing with trains and so it seems natural that Warren Buffett should buy himself a train set for Christmas. The train set he has bought is the Burlington Northern Santa Fe Corporation (BNI) and it has cost Berkshire Hathaway around $44 billion, which is a lot even by Warren Buffett's standards, it is in fact the company’s biggest takeover under Warren Buffett and a bet on the US economy by him.  Plus, as China uses a lot of coal from the US that needs to be carried by rail it is also a bet on the Chinese economy.

Berkshire Hathaway already owned 22.6% and will buy the 77.4% of the railroad it doesn’t already own for $100 a share in cash and stock, this includes $10 bn in outstanding debt. That is a 24% premiumn to the railroad’s closing price yesterday of $76.07. They will be borrowing $8 billion to finance the deal.

Warren Buffett said “It’s an all-in wager on the economic future of the United States”.

Berkshire Hathaway has been slowly accumulating a stake in the railroad over two years as Buffett takes a gamble on a large acquisition to deploy Berkshire Hathaway's s cash hoard. The Oracle of Omaha believes that trains will become more competitive as fuel prices rise.

“As oil prices go up, higher diesel fuel raises costs for rails, but it raises costs for its competitors, truckers, roughly by a factor of four. There could be a lot more business there than there was in the past.” Buffett told shareholders back in 2007.

“Our country’s future prosperity depends on its having an efficient and well-maintained rail system.”

Matthew K. Rose, Burlington Northern Santa Fe chairman, president and CEO said “We are thrilled to have the opportunity to become a part of the Berkshire Hathaway family,” said “We admire Warren’s leadership philosophy supporting long-term investment that will allow BNSF to focus on future needs of our railroad, our customers and the U.S. transportation infrastructure. This transaction offers compelling value to our shareholders and is in the best interests of all of our constituents including our customers and employees.”

Burlington Northern has 6700 locomotives and 32,000 miles of track, most of which is west of the Mississippi. The company carries coal, grain, and "intermodal containers", which can be carried via rail, road and sea.

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