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Berkshire Hathaway, Carnival: Ratings Changes

TheStreet.com has upgraded Warren Buffett's Berkshire Hathaway and cruise operator Carnival.
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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) - Get Berkshire Hathaway Inc. Class A Report

, 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

TheStreet Recommends

Cooper Industries

(CBE)

, 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) - Get Carnival Corporation Report

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.

The stock

: Carnival has advanced 20% this year, more than the Dow or S&P 500. The stock trades at a cheap price-to-earnings ratio of 10, but the company hasn't paid a dividend this year. Carnival will benefit from the eventual rebound in consumer spending.

The model upgraded hard-drive maker

Western Digital

(WDC) - Get Western Digital Corporation Report

to "buy."

The numbers

: Fiscal fourth-quarter net income fell 8% to $196 million, or 86 cents, as revenue dropped 3% to $1.9 billion. Its operating margin declined from 12% to 10% and its net margin decreased from 11% to 10%. Western Digital has an admirable financial position, reflected in its quick ratio of 1.8 and debt-to-equity ratio of 0.2.

The stock

: Western Digital shares have almost tripled this year, trouncing major U.S. indices. At a price-to-earnings ratio of 15, the stock is still affordable, but the company doesn't pay dividends.

The model upgraded

Ventas

(VTR) - Get Ventas, Inc. Report

, a real estate investment trust that owns health care properties, to "buy."

The numbers

: Second-quarter net income jumped 26% to $88 million, but earnings per share remained flat at 30 cents due to a higher share count. Revenue inched up to $232 million. Its operating margin rose from 40% to 43% and its net margin climbed from 30% to 38%. The REIT has an adequate liquidity position, with $141 million of cash, but a debt-to-equity ratio of 1 indicates higher-than-ideal leverage.

The stock

: Ventas is up 11% this year, beating the Dow and S&P 500. The stock trades at an expensive price-to-earnings ratio of 28, but offers an impressive 5.5% cash distribution yield. Cash distributions are taxed differently than dividends.

-- Reported by Jake Lynch in Boston

.