Is Berkshire Hathaway Inc. (BRK.B) Trading at a Major Discount?

Indeed, most individual investors want to invest like famous investor Warren Buffett, which is the reason why they tend to piggyback his investment ideas. However, the billionaire investor recently told CNBC’s “Squawk Box” that investors should not mimic his moves or those of other successful money managers. “I wouldn’t ever urge them [investors] to do anything based on what we do. If they want to do what Berkshire does, then they should buy Berkshire”, said the Chairman and CEO of holding company Berkshire Hathaway Inc. (NYSE:BRK-B). Moreover, the Oracle of Omaha said: “I think they’re making a big mistake by piggybacking me or 10 other people whose names appear in the paper. That is not a great strategy; a great strategy is just to buy stocks consistently over a lifetime and not worry too much about whether they go up or down in any given month or year.” Of course, this is great advice from Mr. Buffett, one of the world’s wealthiest people, but not all retail investors can afford the luxury of losing thousands of dollars before making a profit. Leaving Mr. Buffett’s recommendation aside, let’s find out how hedge fund sentiment towards Berkshire Hathaway Inc. (NYSE:BRK-B) changed in the fourth quarter of 2015.

Is Berkshire Hathaway Inc. (NYSE:BRK-B) the right investment to pursue these days? The best stock pickers are turning bullish. The number of long hedge fund positions increased by six in recent months. At the end of this article we will also compare BRK-B to other stocks including Exxon Mobil Corporation (NYSE:XOM), Amazon.com, Inc. (NASDAQ:AMZN), and General Electric Company (NYSE:GE) to get a better sense of its popularity.

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Berkshire Hathaway Inc. (NYSE:BRK-B) is a holding company that owns subsidiaries engaged in a wide range of business activities. Both the company’s class A and class B common stock was caught up in the middle of the broader market sell-off back in August and September, which created very attractive entry points for investors. Whitney Tilson, founder and managing partner of Kase Capital Management (formerly T2 Partners LLC), discussed his firm’s investment in Berkshire Hathaway in a letter to investors that covered the third quarter of 2015. The money manager stated that the shares of the holding company were trading at a 30% discount to intrinsic value at the end of September 2015. The investor said the following in the letter:

“Using the valuation methodology I’ve used for two decades (see pages 13-18 of my presentation), which has proven to be quite accurate, I estimated at the beginning of this year that Berkshire’s intrinsic value was $254,593. With the year now ¾ over, I estimate that this has risen by ~6% to ~$270,000, based on the company’s 2.4% increase in book value and 14% increase in operating income of the non-insurance businesses in the first half of the year. Thus, with the stock closing September at $195,260, it’s trading at nearly a 30% discount to intrinsic value.”

More importantly, the letter said that Berkshire Hathaway Inc. (NYSE:BRK-B)’s stock “offers the wonderful combination of substantial upside and limited downside. But it’s even more compelling than it appears because Berkshire has made a nearly $14 billion profit, equal to $8,428/share, on its investments in Heinz and Kraft, which is not yet reflected in the company’s financial statements. To my knowledge, this extra value hasn’t been noticed by any analysts, media or investors.”

With all of this in mind, on the next page we’ll take a gander at the recent action surrounding Berkshire Hathaway Inc. (NYSE:BRK-B), as well as take a look at what other investors had to say about the holding company.