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Author: mungofitch Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 211703  
Subject: Re: BRK/USG: Date: 11/17/2013 6:26 AM
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My wild guess is that Berkshire will sell the shares thus acquired.
The point being... that you think it's grossly overvalued?

Not so much.

Bearing in mind that this in in the context of a mere wild guess...

More that it has turned out to be a not-so-great business, not-so-well run,
and I suspect that it's now evidently not the quality of firm that Mr
Buffett perceived it to be at the time of the first share purchases.
Note that this investment was via a convertible note, not share purchases:
code for "shares aren't a good enough deal even at these prices".

As for valuation, well, it isn't screamingly cheap even if you like the firm.

BRK would own close to 30% of the company after this conversion, so I'd think
it'd be pretty tough to sell any large portion of that in an orderly way.

They could still be sold easily over a period of time, whenever prices are good, like Moody's.

The bigger question is whether they want them. Could after-tax proceeds of a
sale now be deployed into something offer better (higher/more reliable) future returns?
I think so, so I (arrogantly) imagine Mr Buffett thinks so too.
In the last 11 years they have lost, in aggregate, about $18.66 per share including losing about $11.30 in the last 6.
Hardly one of the "inevitables", and not even "a nice little earner".
What's the best one can hope for? One can hope that the nightmares are over.
Let's say a future "normal" year, cyclically adjusted, is 2/3 of what their last really good year was, average 2006-2007 was about $3.65 EPS.
We don't expect another gigantic housing construction boom, I presume.
2/3 of that would be $2.40ish.
No gigantic growth is obvious. I wouldn't bank on growth much above inflation.
Give it maybe a 9-10x multiple for a perennially cyclical and competitive business, that's $22-24.
So I might like it a lot at $7, perhaps dabble at $17 at the outside, but ditch it at $27.

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