Are Berkshire Shares on Sale?

Berkshire Hathaway (NYSE: BRK.A) shares continue to trend downward during the last few days, but some investors remain confident in the Oracle of Omaha Warren Buffett. The company currently trades with a price-earnings multiple of just 14.75x earnings after several questionable investments in the financial sector.

Buffett’s investment in Goldman Sachs (NYSE: GS) may have been poorly timed given the decline, but it was not your average investment. The billionaire received perpetual preferred stock that pays a 10% dividend as well as warrants for $5 billion of common stock at $115 per share. The strike price may be well above the current share price, but they do not expire for another five years.

Buffett also purchased a $3 billion stake in General Electric (NYSE: GE) via preferred shares with a 10% dividend along with the option to buy an additional $3 billion worth of common stock at $22.25 per share for the next five years. These warrants may also be lower than the current share price, but the terms of the deal are extended into the future.

These two companies could easily have found better terms elsewhere, but Warren Buffett’s status as an icon helped reassure other investors. The investments may also be trading lower right now, but the combination of a 10% dividend and long-term rights help ensure that the investments will pay off eventually.

It is also worth noting that Berkshire Hathaway B shares are trading at a discount to the A shares. The market capitalization of the B shares is around $163.88 billion versus A shares valuation of around $167.16 billion. This discrepency isn’t enough for a meaningful arbitrage play, but it does represent a good entry point for smaller investors to get involved.

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