5. Berkshire Hathaway
Berkshire Hathaway's class B shares closed at $78.87 Thursday, returning 3% year-to-date, following a 5% decline in 2011.
The shares trade for 1.9 times tangible book value, according to Worldscope data provided by Thomson Reuters, and for 15 times the consensus 2012 earnings estimate of $5.15 per class B share. The consensus 2013 EPS estimate is $5.45.
Berkshire Hathaway is, by far, the most expensive stock to tangible book value and forward earnings estimates among the five listed here, reflecting the long-term prominence of the company and its CEO, Warren Buffett.
Most of the media coverage of Buffett's annual letter to shareholders last month focused on his announcement that the company's board of directors was "enthusiastic about my successor as CEO, an individual to whom they have had a great deal of exposure and whose managerial and human qualities they admire," although neither the successor nor the "two superb back-up candidates" were identified.
One key investment made during 2011 that Buffett focused on in the letter were the $5 billion in
Bank of America
(BAC - Get Report)
preferred shares purchased in September, which feature a lovely 6% coupon, along with warrants allowing Berkshire Hathaway to buy 700 million BAC common shares at $7.14 a share.
The warrants were in-the-money for $644 million as of Thursday's close, but of course Buffett will be looking to make a much larger killing on this portion of Berkshire's Bank of America investment.
Investors have been scratching their heads over this deal, since Bank of America said in its annual 10-K filing that "the related to Berkshire, increased Tier 1 common capital approximately $2.1 billion, or 15 bps," which seems like small potatoes, in comparison to the potential bath BAC will take when Berkshire finally exercises the warrants.
KBW analyst Cliff Gallant rates Berkshire Hathaway "Outperform," with a $133,000 price target for the company's class A shares, implying 12% upside from the class A closing price of $119,005.00 on Thursday.
Gallant said on March 2 that Berkshire's GEICO subsidiary is over-reserved, expects the auto insurance subsidiary "to benefit from reserve releases" during 2012, but the unit's profitability "has deteriorated materially as shown in loss ratio picks over the past six years, and particularly in 4Q11 results."
Barclays Capital analyst Jay Gelb has a "Positive" rating on Berkshire Hathaway, with an $85 price target for the class B shares, and said on Feb. 27 that "4Q11 operating earnings were below our outlook, driven by lower-than-expected Insurance unit earnings," but that "on a positive note, earnings growth in the non-insurance businesses was strong," particularly for Burlington Northern Santa Fe Corporation, which Berkshire acquired in February 2010.
Gelb estimates that Berkshire Hathaway will earn $5.45 per class B share during 2012, followed by EPS of $5.80 in 2013.
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