Buffett’s Berkshire Hathaway earnings increase
NEW YORK: Meyer Shields says earnings at Warren Buffett's Berkshire Hathaway Inc. will increase the most since 2006 this year. He's also telling investors to sell the shares because the economic recovery is weakening.
The Stifel Nicolaus & Co. analyst has plenty of company. For the first time since at least 1997, fewer than 29 percent of ratings for stocks covered by brokerages worldwide are "buys," according to 159,919 recommendations compiled by Bloomberg. Analysts are turning more pessimistic even as they push up estimates for profit growth among Standard & Poor's 500 Index companies to 36 percent, the highest since 1988.
"People are sitting on a fence," said Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, which oversees $550 billion. "When I go and talk to our equity analysts, they look at the companies and say, ' Boy these companies look pretty good, earnings are OK, they have plenty of cash. What if there's a double dip?'"
Conflicting announcements two minutes apart by Intel Corp. and Federal Reserve Chairman Ben S. Bernanke last week underscore the challenges facing analysts and investors even as stocks trade at a lower price relative to estimated earnings than almost any time on record. Intel cut its third-quarter revenue forecast, citing weaker-than-expected consumer demand. Bernanke said the central bank "will do all that it can" to safeguard the recovery.
More than 54 percent of ratings for companies in the U.S., U.K., Japan and Brazil are "holds," the highest level since Bloomberg began tracking the data in 1997. While the proportion of "sell" ratings in the U.S. has fallen to 5.1 percent, half the level of 2003, the total combined with "holds" reached a record 71 percent last month, the data show.
"A 'neutral' usually means historically a ' sell,'" said Kevin Rendino, a money man- ager at New York-based BlackRock Inc., which oversees about $3.2 trillion. "Ratings chase stock prices. When everyone becomes risk averse, they don't want to stick their necks out."
While pessimism is increasing, analysts say profits for companies in the MSCI World Index of 24 developed nations will gain 28 percent in the next year. The MSCI index trades at 11.5 times forecast earnings, data compiled by Bloomberg show. Except for the six months starting October 2008, the index has never traded below 12.5 times reported earnings. Topping Estimates Trading on Aug. 27 illustrated the mixed messages facing investors this year.
Stock index futures jumped at 8:30 a.m. when the Commerce Department revised its second-quarter economic growth estimate to a 1.6 percent annual pace, below the initial assessment of 2.4 percent reported last month, yet beating the 1.4 percent median forecast from a Bloomberg survey of 81 economists. The market opened higher, with the S&P 500 advancing 0.2 percent.
The gains were erased just before 10 a.m. when Intel said consumers were curtailing computer purchases. Two minutes later, Bernanke sparked a 1.7 percent rally in the S&P 500 by predicting an improving economy in 2011.
"This market has been whipsawing us back and forth," said Mike Ryan, the New York-based head of wealth management research for the Americas at UBS Financial Services Inc., which oversees about $641 billion. "People are interpreting each and every data point either for validation or for repudiation of the view they hold."
Gains on Aug. 27 trimmed the S&P 500's weekly decline to 0.7 percent, closing at 1,064.59. Futures on the gauge rose 0.2 percent to 1,066.3 as of 9:10 a.m. in London.
The benchmark gauge for U.S. equities is down 4.5 percent in 2010 after Europe's debt crisis wiped out an increase of as much as 9.2 percent. Citigroup's Economic Surprise Index showing how much U.S. economic data is differing from forecasts fell to minus 64 on Aug. 25, the lowest since January 2009.
Analysts from Stifel's Shields to Oppenheimer & Co.'s Rick Schafer and Anthony Gallo at Wells Fargo Securities LLC are advising clients against buying shares of Berkshire, Intel and C.H. Robinson Worldwide Inc. even after boosting profit forecasts.
Shields says his biggest concern is that joblessness will weaken consumer spending, which accounts for 70 percent of the American economy. The unemployment rate held at 9.5 percent for a second month in July and has fallen less than a percentage point from the 26year high of 10.1 percent last year, according to the Labor Department in Washington.
"It's negativity on the economy and therefore the ' sell' rating on Berkshire," Shields said in an interview from Baltimore. -Bloomberg