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Buffett and Cramer Agree: It's Time to Buy Stocks

by: Benjamin Taylor October 12, 2008 | about stocks: BRK.A / BRK.B / DLIA / PCR    

Benjamin Taylor

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It’s a little amusing to me how much attention Jim Cramer’s comments about pulling your “5-Year-Money” out of the market and sitting it in a safe place like cash or bonds garnered over the past few days. I for one, having given similar advice, didn’t find it that controversial. An investor, especially an individual investor, should never put their near term money at risk in the stock market.

Some professionals, like Henry Blodget [video], have even gone as far to say Cramer’s call to action is at odds with what Warren Buffett is doing, which is buying up strong franchises like, Constellation Energy (CEG), GE (GE) and Goldman Sachs (GS). I beg to differ. Underlying Cramer’s call was any money investors do not need for near term purposes, should absolutely be at work in the market. It’s time to buy.

There are deals in the stock market that can be had right now that will likely not be seen again for quite sometime. A few are:

  • Berkshire Hathaway (BRK.A): If there was ever a time to invest in Buffett’s company it’s now. For years the firm held $50 billion in cash searching for investments to make. This year alone, Buffett has invested $40 billion. He received warrants on both the GE and Goldman Sachs deals and though both are currently out of the money, they stand to be highly profitable investments. Berkshire’s A shares are likely worth $150,000 to $160,000 before accounting for how the company’s new investments will impact the business. Shares ended the day at around $113,000 per share, representing a 25% to 30% discount.
  • Perini (PCR): Perini, a construction and general contracting company, has been trading well below the value of their backlog of sales and orders waiting to be filled. The company also recently announced $248 million in new contracts in Florida and Virginia. The stock gained almost 20% Friday skyrocketing at the end of the day to $17.64, but still trades near cash on the balance sheet of $15.55 per share.
  • Delia’s (DLIA): Recently Foot Locker (FL) offered to buy this clothing retailer's direct marketing business CCS for $102 million. The enterprise value (market cap + debt – cash) for the entire firm is only $66 million. The market hasn’t responded yet as the stock continues to hover around $2 per share although it gained almost 10% Friday. The selling in the market is pervasive and there just aren’t any buyers right now. But there will be for this company which is likely trading at less than half its true worth.

Disclosure: I and the clients of Brick Financial Management, LLC owned shares of Berkshire Hathaway, Perini and Delia’s at the time of writing.

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This article has 12 comments:

  •  
    Oct 12 08:31 AM
    People have short memories. Cramer's people got wiped out in the internet bubble. The CNBC chat boards discussed it for years til they buried the board. At the time, Cramer said Amazon.com was going out of business. I emailed that they were not , and would be one of the survivors. Later it became one of his four horseman of tech.

    He recently (like 3 weeks ago) called a bottom. Anyone that backed up the truck had the truck fall on them.

    Cramer is a smart guy, decent guy, and I dont think many people have his degree of market knowledge. However when things are in this type of mess following any "leader" could be disasterous. People were "playing the market" like the lottery and the "Fast Money" crew was even worse. Heck they were riding that clearly speculative bubble from stock to stock (the coal, the fertilizer the oil etc).

    While this might be the time to invest, Cramer thought it was weeks ago as well. This might be the one time that surprises everyone and proved Cramer wrong yet again.

    A credit induced liquidation for cash is not a usual market event.

    We all hope it gets better, and I hope as this article states , better times are coming as per these two men.

    Marty
    Reply
  •  
    Oct 12 10:00 AM
    Never listen to any analyst or "guru". Do you own research and invest according to your own financial situation.
    Reply
  •  
    Oct 12 10:19 AM
    At Dow 8500, we're back on the long-term trend line of 6-7% growth, right where we'd be if not for the stock bubble that began in the mid-90s. The probabilities of further stock market growth were dependent solely on multiple expansion, and those probabilities were growing smaller and smaller. Now it's a coin flip. Short-term, my guess (and I freely admit it's a guess) is that we'll stay below the short-term trend line. Maybe a year, two, or more. But, below Dow 8,500, US equity investors will be rewarded over the next decade.
    Reply
  •  
    Oct 12 10:46 AM
    Attention hedge fund and money managers - keep selling! Your pain is my gain! Lo siento!!!!!
    Reply
  •  
    Oct 12 11:34 AM
    I totally agree that it's time to buy. I have been saying it's time to accumulate good quality companies for the last month or two. The gaming stocks like MGM, LVS, Wynn and Boyd are way oversold. They are strong companies. I also like Perini (PCR) and RIO and TRA. and BUCY. i can't pick the bottom of this downturn and no one else can either, but at these prices and the strength of these companies you will make money big time when everything bcomes normal again.
    As for Cramer, he's an actor that couldn't make Hollywood.
    And I must admit I have been losing money for the last month or two and will continue to lose until the market turn around
    Dan Kowkabany
    Reply
  •  
    Oct 12 12:47 PM
    Thanks for making specific common stock recommendations. Most commentators simply say things like "it's time to buy stocks" and some even name broad sectors and/ or market segments like "technology" or "early cycle stocks", neither of which is very helpful.
    Reply
  •  
    Oct 12 01:19 PM
    Grantham of GMO fame has stated that fair value for DJIA is 9000 and S&P is 1050. Both are now below this. Makes sense to dollar cost average in now even though may go lower. Hedge funds are selling down for September redemptions, many will go broke. This is the reason for the sudden drop. Soon the value investors will start buying. Remember Buffett has NEVER bought a stock at its very lowest - it is nearly impossible - he just decides that is at least 20% below fair value and acts - it's better to be roughly right than precisely wrong. Have courage but only if you have a long-term perspective and enough of an income to wait it out. In a few years you friends wwill be calling you a stock market genius!
    Reply
  •  
    Oct 12 01:31 PM
    OK, Alright! But which stocks do I have to buy? Not every stock is 'create' equal to buy. Most of them are labeled "warning" from their management about future outlook such as GE
    Reply
  •  
    Oct 12 04:48 PM
    Agree that PCR is a screaming buy!!! Also see NSH.
    Reply
  •  
    Oct 12 04:57 PM
    Buffett has said: "We like to price, rather than time our investments." And yes, I agree with you on BRK. You may also enjoy reading "The Four Filters Invention of Warren Buffett and Charlie Munger." It explains and honors the intellectual partnership of two brilliant men. The genius of Buffett and Munger's four filters innovation was to "capture all the important stakeholders" in one "multi-variable&q... four step process.
    www.amazon.com/dp/0615...
    I am not familiar with the other two companies. How is their record on free cash flow growth? What is the competitive situation there?
    From the book I mentioned above, folks can get a better idea of how Buffett and Munger "frame" their investing decisions.
    Reply
  •  
    Oct 12 07:46 PM
    Many investors and concerned citizens around the world are showing their outrage at what the Federal Reserve has done to the American economy with their easy money policies which caused the credit & real estate bubble and subsequent global financial meltdown.

    Join the thousands who are signing & commenting on the Abolish the Federal Reserve Petition at www.petitiononline.com...

    Reply
  •  
    Oct 12 10:30 PM
    Cramer called the bottom on 15 July --didnt fare well for him this time either
    good post Marty
    Reply
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