Berkshire a Sell on Reserve, Dollar Weakness: Analyst

Reliance on reserve releases could also hurt.
By Dan Freed ,

NEW YORK (

TheStreet

) --

Berkshire Hathaway

( BRK-B) is relying on reserve releases for income and may be vulnerable if the dollar weakens, according to an analyst who recently reiterated his "sell" rating on the company.

Stifel Nicolaus analyst Meyer Shields argues domestic insurance companies owned by Berkshire Hathway -- run by 80 year-old investing legend

Warren Buffett

-- have relied heavily on reserve releases for income this year.

Shields sees fair value for Berkshire "A" shares at $107,500, about 12% below where the shares closed Tuesday.

The $310.5 million of reserve releases in the third quarter brought the total to $1.8 billion for 2010, equating to roughly 14.5% of operating income this year, a report Wednesday stated. Shields contends income of this nature cannot be sustained.

The report also argues that sizeable reserves denominated in currencies other than the U.S. dollar have caused big profit swings for Berkshire. Shields believes the strong dollar in the first half of the year was responsible for a $177 million foreign currency transaction gain, while he sees a $181 million third-quarter foreign currency transaction loss as being tied to the dollar's poor performance in that period.

"We claim no

foreign exchange projection skill, but continuing dollar deterioration could negatively impact Berkshire's underwriting results, and vice versa," the report states.

Working in Berkshire's favor if the dollar weakens, however, may be a large stake in Goldman Sachs and a newly acquired stake in

Bank of New York Mellon

(BK) - Get Report

. Both of those stocks could hold up reasonably well if

inflation

spikes up.

While the dollar has strengthened since early November on jitters over high levels of European sovereign debt, most analysts expect the U.S.

dollar weakness

over the next year or so. Many also fear a bout of inflation, which are reflected in rising prices for commodities and precious metals, and related exchange-traded funds like

GLD

(GLD) - Get Report

and

SLV

(SLV) - Get Report

.

--

Written by Dan Freed in New York

.

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