NEW YORK (
) -- The big news on
on Monday was revelation of a dispute with the SEC over accounting for Berkshire Hathaway portfolio losses.
On Monday, Berkshire Hathaway released copies of letters detailing a discussion between the Buffett investment company and the SEC over losses incurred in shares of
( KFT) and
Buffett doesn't have to worry about recent losses in housing sector supply company
, at least for a day. USG shares are up more than 7% after reporting earnings on Monday morning, and eclipsed its average daily trading volume at the mid-day mark on Monday.
USG, a maker of wallboard for the housing sector, has been a classic Buffett play: it's focused on the brick-and-mortar strength of the U.S. economy, and it's an unloved stock as far as the Street is concerned. Not one analyst on the Street rates USG a buy. Currently, all but one analyst of the 14 that cover USG rate the stock a hold. Berkshire Hathaway owns more than 17 million shares of USG -- there are roughly 100 million shares outstanding -- and Buffett has been at a hold on USG recently, also, keeping his 17 million share USG stake steady over the past several quarters.
The Street isn't about to move to a pounding of the table on USG shares after its earnings, either. Garik Shmois, analyst at Longbow Research, and among those who rates USG a hold, said that the earnings were less a reason for the rally in USG shares than the general bullish sentiment about housing on Monday morning. In fact, the rally in USG shares is a function of investor activity of which Warren Buffett would not approve: high beta trading on the positive news from the housing sector, as opposed to a long-term read of value in USG shares.
The latest existing home sales report showed a 10% increase, giving credence to the thesis that the slowdown in home sales after the expiration of the federal home buyer tax credit would be short-lived.
"As housing bottoms out after several lean months, USG is being viewed by investors as a high beta play. Investors have been using it for trading reasons even though the long-term investment case is still pretty tenuous," said Longbow analyst Shmois. "The stock tends to move up when investors have confidence on housing," Shmois said.
From an earnings perspective, USG did beat on the top line, reporting revenue of $758 million, versus a Street consensus of $693 million, but it missed the Street consensus earnings of a 59 cent loss. Longbow Research estimates that after accounting for one-time charges, USG lost 65 cents per share in the third quarter.
Notably, wallboard shipments were still negative quarter over quarter, and pricing was a "little disappointing" in the description of the Longbow Research analyst. Even though USG beat on the top line, the supply/demand imbalance in the housing market is expected to keep volumes weak.
USG is still three to four years away from achieving any pricing power, in the opinion of the Longbow analyst. The housing market may have bottomed, but housing needs to improve materially from these levels, and capacity closures need to be made in USG's market. "One positive data point doesn't give me conviction. We still would like more visibility on the rate of recovery in housing," Longbow's Shmois said.
USG shares are still down more than 12% in the past year and have suffered an 8% loss in the year-to-date period.
Another Warren Buffett play rallying on Monday is
In the case of Nalco, the water treatment services company, it wasn't a macroeconomic trigger like a housing number, but a
report that is sending shares higher. The financial publication predicted in its Monday issue that shares of Nalco would rise 50% fueled by growth in China. Nalco's revenues in are predicted to hit $500 million by 2015.
Nalco shares were up more than 4% on Monday and trading was at twice the average daily volume for the water treatment services company.
Buffett's Berkshire Hathaway owns more than 9 million shares of Nalco.
-- Written by Eric Rosenbaum from New York.
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