Berkshire Hathaway, Carnival: Ratings Changes

TheStreet.com Ratings provides exclusive stock, ETF and mutual fund ratings and commentary based on award-winning, proprietary tools. Its "safety first" approach to investing aims to reduce risk while seeking total return performance.

BOSTON (TheStreet) -- TheStreet.com's stock-rating model upgraded Warren Buffett's company, Berkshire Hathaway(BRK.A Quote), to "buy." Berkshire owns reinsurer General Re and auto insurer Geico.

The numbers: Second-quarter revenue dropped 2% to $29 billion, but earnings rose 14% to $3.3 billion, or $2,123 a share. Its operating margin increased from 16% to 17% and its net margin climbed from 10% to 11%. Berkshire has an impressive cash balance, with nearly $25 billion of reserves. And its debt-to-equity ratio of 0.3 indicates restrained leverage.

The stock: Berkshire is up 4% this year, underperforming the Dow Jones Industrial Average and the S&P 500 Index. The stock trades at an expensive price-to-earnings ratio of 61, but Berkshire has an impressive record of earnings growth. The company doesn't pay dividends.

The model upgraded Cooper Industries(CBE Quote), which makes electrical products and tools, to "buy."

The numbers: Second-quarter net income declined 45% to $89 million, or 53 cents, as revenue decreased 26% to $1.3 billion. Its operating margin dropped from 15% to 11% and its net margin decreased from 9% to 7%. Over $462 million of cash and a quick ratio of 1 indicate adequate liquidity. A debt-to-equity ratio of 0.4 demonstrates restrained leverage.

The stock: Cooper Industries is up 14% this year, beating the Dow and S&P 500. The stock trades at a cheap price-to-earnings ratio of 12 and offers a fair 3% dividend yield.

The model upgraded cruise operator Carnival(CCL Quote) to "buy."

The numbers: Second-quarter net income shrank 32% to $264 million, or 33 cents, as revenue fell 13% to $3 billion. Its operating margin declined from 14% to 12% and its net margin deteriorated from 12% to 9%. Carnival has a weak liquidity position, with just $485 million of cash and a quick ratio of 0.2. But a debt-to-equity ratio of 0.5 indicates a sound capital structure.