In business, as in love, opposites attract.
That is definitely the case when you look at the misfits and renegades who make up the
( BRKA) board of directors. Berkshire, run by famous value investor Warren Buffett and his right-hand man, Charlie Munger, is known for liking easy-to-understand businesses (in other words, anything that isn't tech) trading at low multiples over cash flows or book value.
However, the Berkshire board of directors paints quite a different story. If anything, Buffett is exhibiting his genius by hiring managers who can complement his own skill sets and by filling in what could be considered gaps in the Berkshire Hathaway universe. In particular, he has appointed several pioneers of the tech world to the board.
At Stockpickr, we keep track of all the top investments and interrelationships of the members of the Berkshire board of directors with our
Let's take a look at some of the names found in that portfolio.
At first glance, it's impossible to look at the Berkshire Hathaway board without noting the presence of Bill Gates. The Gates-Buffett relationship runs deep, and it's difficult to say whether Gates is even an outside director at this point. Buffett made headlines last year when he announced that he was giving away almost his entire estate to the Gates Foundation.
is obviously Gates' top holding, it's important to note that Gates and the Gates Foundation invest their money through Cascade Investment, which has a diverse group of value-oriented holdings.
For instance, Buffett just bought a railroad,
Burlington Northern Santa Fe
( BNI), and has announced he is building positions in two others. Meanwhile, Cascade owns a Canadian railway,
Canadian National Railway
. Check out the
page on Stockpickr for a full list of their investments.
Microsoft seems fairly priced at around $29 a share. Unlike when shares were at $22 earlier this year, it doesn't seem like a no-brainer to buy them here. Everything depends on Vista sales over the next year, how Xbox sales and games for the Xbox ramp up, and if Microsoft figures out how to monetize the MSN Internet portal.
My guess is that when Gates is sitting around during lunch breaks at Berkshire board meetings and starts chatting with Sue Decker, chief financial officer of
, interesting things can happen. And I'd speculate that a tighter relationship will develop between Microsoft and Yahoo!.
Another name in the Berkshire Hathaway board of directors portfolio is
. Donald Keough, formerly the president of
, sits on the board of Berkshire Hathaway and the board of Convera. Convera can be thought of as the
of the enterprise software world. It provides software that can search through disparate corporate databases for various types of data to analyze.
Keough is also the chairman of boutique investment banking firm Allen & Company, which has been a large shareholder of Coca-Cola and owns 22% of Convera.
Convera, with a $190 million market cap and only $16 million in revenue (and $47 million net cash in the bank), is not cheap by value standards. But if the idea of search in the enterprise universe takes off, the company could easily be an acquisition candidate for a larger entity such as
Looking at Yahoo! and
next, both companies -- as well as Berkshire Hathaway -- are connected through Sue Decker. As I noted earlier, Decker is the CFO of Yahoo!, and she also sits on the board of Intel and is a brand new member of the board of Berkshire Hathaway. Decker has often been thought of as a possible successor to Yahoo! Chairman and CEO Terry Semel.
Yahoo! is another company that isn't cheap by value standards, but one that could get cheaper. Over the past 12 months, it has had EBITDA (earnings before interest, taxes, depreciation and amortization) of $2 billion on revenue of $6.53 billion.
Assuming that its new advertising platform, Panama, is a second-half 2007 story and that revenue continues to grow at the current rate, by 2008 Yahoo! could be trading at a meager 14 to 15 times EBITDA at current levels.
It's difficult to know what to compare this to.
continues to exhibit phenomenal growth, but it trades at 30 times EBITDA. And
-- which is really a collection of disparate Web sites, such as LendingTree.com, Ask.com and Citysearch.com -- trades at just 10 times EBITDA.
Note that IAC/InterActive is also part of this Berkshire Hathaway board of directors portfolio because Donald Keough is on the board of IAC/InterActive.
Yahoo! is primarily going to be an execution story over the next year. If Panama is a huge success, then it can easily exceed the revenue and margin expectations of analysts, propelling shares back into the $40s.
I also believe gains from its acquisitions of Web sites Flickr and del.icio.us will kick in over the next 12 months, causing the company to surpass expectations.
Intel, on the other hand, is dirt cheap. The company has a ton of new products and innovative technologies coming out. Its margins are improving despite a price war with
Advanced Micro Devices
, and it trades for less than 10 times cash flows and has $7 billion net cash in the bank. My target for Intel is $28 to $30 over the next 12 months.
, a micro-cap name that is a roll-up of various legal newspapers and magazines. Essentially, it was started and managed by Charlie Munger.
The company trades for 11 times cash flows, but it's definitely a micro-cap, with $5 million net cash in the bank and only a $60 million market cap. With the rise of the Internet, Daily Journal has basically traded flat for the past 10 years.
Daily Journal (DJCO)
But it's a somewhat "secret passion" of Munger's to keep this company going.
For more of Munger's passions, we keep track of his holdings (separate from Berkshire) at the
It's also interesting to note that the other "oracle of Omaha," Wally Weitz, is a shareholder of Daily Journal. Check out the
page on Stockpickr. I've also written about him in the past as
a potential successor to Buffett, now that Buffett is looking for an apprentice.
Ultimately, though, I believe Buffett is going to select Thomas Gayner, who manages investments for insurance company
. We keep track of
on Stockpickr, and Markel is also a member of the
For the remainder of holdings and interrelationships of the other members of Berkshire Hathaway's board, including several surprising micro-caps and small-caps, make sure to take a look at the
Please note that due to factors including low market capitalization and/or insufficient public float, we consider Daily Journal to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.
At the time of publication, Altucher and/or his fund had no positions in stocks mentioned, although positions may change at any time.
James Altucher is a managing partner at Formula Capital, an alternative asset management firm that runs several quantitative-based hedge funds as well as a fund of hedge funds. He is also the author of
Trade Like a Hedge Fund
Trade Like Warren Buffett
. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback;
to send him an email.
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