Buffett Hunts Abroad With $6 Billion Wager on Japanese Firms
(Bloomberg) — Warren Buffett, with more than $146 billion of cash on hand, has been struggling to find attractively priced assets at home in the U.S. Now, he’s looking abroad.
The announcement late Sunday by Buffett’s Berkshire Hathaway Inc. that it bought stakes in five of Japan’s biggest trading companies marks one of his largest-ever forays into Asia’s second-largest economy. The wagers show that Berkshire’s chief executive officer, who turned 90 over the weekend, is willing to expand the company’s horizons in his search for ways to supercharge the Omaha, Nebraska-based conglomerate’s growth.
“I think this is a definite signal that Berkshire is more likely to examine and pursue potential investments internationally,” David Kass, a professor of finance at the University of Maryland’s Robert H. Smith School of Business, said. “This could be the beginning of the tip of an iceberg. There could be many more investments such as this.”
The investments into commodity-centric Japanese conglomerates known as “sogo shosha,” disclosed in a statement from Berkshire, underscore Buffett’s willingness to bet on economically sensitive companies despite the pandemic. The five Japanese companies also have interests in businesses ranging from home-shopping networks to convenience-store chains, offering Berkshire exposure to a wide swath of the Japanese economy.
Read more: Buffett’s Bet Paves Way for Japan as a Global Value Trade
Berkshire said it acquired stakes of about 5% in Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co. and Sumitomo Corp. over the past 12 months. Shares of all five companies jumped at least 4% in Tokyo trading on Monday and Japan’s benchmark Topix index rose as much as 1.9%.
Buffett has been seeking ways to deploy his record cash pile into higher-returning assets to fuel the growth at Berkshire that’s made him famous. But he’s been stifled by high valuations for acquisitions in recent years.
Berkshire Hathaway has continued to rake in funds faster than Buffett can deploy them, a high-class problem that’s been a drag on the stock price. The conglomerate’s shares underperformed the S&P 500 index over the past decade.
While the bets are valued at more than $6 billion, they represent just a sliver, about 4%, of Berkshire’s total cash pile. But the wagers underscore that Buffett sees value in Japanese stocks, according to Kass. Berkshire’s investment comes as global investors have pulled $43 billion from Japanese stocks this year in favor of high-flying U.S. technology shares and other companies viewed as more resilient to economic turmoil.
The investments also give Berkshire more exposure to commodities. Berkshire Hathaway has recently been adding to that bet with deals including a $4 billion agreement to purchase most of Dominion Energy Inc.’s natural gas pipeline and storage assets in July.
Valuations in the sector have cheapened relative to the broader stock market in recent years, weighed down by falling commodities prices and investors’ preference for growth stocks like Amazon.com Inc. Most of the Japanese companies targeted by Berkshire trade at less than book value and offer higher dividend yields than the Topix.
“These trading companies generate strong cash flow, they pay out a lot of dividends and they have businesses that can’t be easily replicated,” said Thanh Ha Pham, an analyst at Jefferies Japan Ltd.
That high barrier to entry is key to Buffett’s investing philosophy. He’s long favored companies that have moats, or some superiority to competitors that makes it hard for others to gain traction. Sumitomo, in describing the business model for the sogo shosha, said it’s a business that’s hard to build overnight, making it challenging for new entrants.
Buffett’s wager could help bolster sentiment toward both commodity plays and Japan. The $5 trillion economy is not only grappling with a persistent coronavirus outbreak and the postponement of the Tokyo Olympics, it’s also going through a leadership transition after Prime Minister Shinzo Abe announced his resignation for health reasons last week. Before its rally on Monday, the Topix had dropped for three straight days and underperformed regional peers in 2020.
“I am delighted to have Berkshire Hathaway participate in the future of Japan,” Buffett said in the statement. “The five major trading companies have many joint ventures throughout the world and are likely to have more of these partnerships. I hope that in the future there may be opportunities of mutual benefit.”
Buffett visited Japan after its 2011 tsunami and nuclear disaster, but he has stayed mostly quiet on investments in the country until now. Speculation that he might be eyeing Japanese stocks has been swirling since September 2019, when Berkshire completed the biggest-ever yen-denominated bond sale by a non-Japanese borrower.
Japan’s trading houses have roots dating back hundreds of years. They supply the resource-poor nation with everything from natural gas to noodles, and have spent the last few decades transforming into conglomerates that hold equity stakes in hundreds of companies around the world. While they’ve diversified into areas such as textiles and machinery, they still derive much of their revenue from energy, metals and other commodities.
Berkshire said it plans to hold the Japan investments for the long term and has pledged to only own as much as 9.9% of the shares in any of the five companies, unless given specific approval by the firm’s board of directors.
“It’s bright news for not only the company but also Japan’s stock market,” an Itochu spokesman said. Mitsubishi said it has been contacted by Berkshire but isn’t able to provide further details. Sumitomo said it will engage in dialogue.
The investments represent a notable push abroad by Berkshire, which has long had its biggest holdings in U.S. companies including Apple Inc. and Coca-Cola Co. Buffett said in 2018 there was a good number of countries he’d be willing to invest in, although foreign firms didn’t turn to Berkshire for funding as quickly as U.S. companies might. Berkshire’s offshore wagers include China’s BYD Co. and Brazilian payment company StoneCo Ltd.
This isn’t the first time Buffett has invested in multiple competitors from one sector. Berkshire took stakes in four major U.S. airlines in 2016, though it ended up selling in 2020 as the pandemic brought most air travel to a halt. The company, which has a stock portfolio valued at about $207 billion at the end of June, is also a major investor in several U.S. banks.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="For more articles like this, please visit us at bloomberg.com” data-reactid=”48″>For more articles like this, please visit us at bloomberg.com
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Subscribe now to stay ahead with the most trusted business news source.” data-reactid=”49″>Subscribe now to stay ahead with the most trusted business news source.
CALGARY – TC Energy Corp. has lowered the estimated cost of its Southeast Gateway pipeline project in Mexico.
It says it now expects the project to cost between US$3.9 billion and US$4.1 billion compared with its original estimate of US$4.5 billion.
The change came as the company reported a third-quarter profit attributable to common shareholders of C$1.46 billion or $1.40 per share compared with a loss of C$197 million or 19 cents per share in the same quarter last year.
Revenue for the quarter ended Sept. 30 totalled C$4.08 billion, up from C$3.94 billion in the third quarter of 2023.
TC Energy says its comparable earnings for its latest quarter amounted to C$1.03 per share compared with C$1.00 per share a year earlier.
The average analyst estimate had been for a profit of 95 cents per share, according to LSEG Data & Analytics.
This report by The Canadian Press was first published Nov. 7, 2024.
BCE Inc. reported a loss in its latest quarter as it recorded $2.11 billion in asset impairment charges, mainly related to Bell Media’s TV and radio properties.
The company says its net loss attributable to common shareholders amounted to $1.24 billion or $1.36 per share for the quarter ended Sept. 30 compared with a profit of $640 million or 70 cents per share a year earlier.
On an adjusted basis, BCE says it earned 75 cents per share in its latest quarter compared with an adjusted profit of 81 cents per share in the same quarter last year.
“Bell’s results for the third quarter demonstrate that we are disciplined in our pursuit of profitable growth in an intensely competitive environment,” BCE chief executive Mirko Bibic said in a statement.
“Our focus this quarter, and throughout 2024, has been to attract higher-margin subscribers and reduce costs to help offset short-term revenue impacts from sustained competitive pricing pressures, slow economic growth and a media advertising market that is in transition.”
Operating revenue for the quarter totalled $5.97 billion, down from $6.08 billion in its third quarter of 2023.
BCE also said it now expects its revenue for 2024 to fall about 1.5 per cent compared with earlier guidance for an increase of zero to four per cent.
The company says the change comes as it faces lower-than-anticipated wireless product revenue and sustained pressure on wireless prices.
BCE added 33,111 net postpaid mobile phone subscribers, down 76.8 per cent from the same period last year, which was the company’s second-best performance on the metric since 2010.
It says the drop was driven by higher customer churn — a measure of subscribers who cancelled their service — amid greater competitive activity and promotional offer intensity. BCE’s monthly churn rate for the category was 1.28 per cent, up from 1.1 per cent during its previous third quarter.
The company also saw 11.6 per cent fewer gross subscriber activations “due to more targeted promotional offers and mobile device discounting compared to last year.”
Bell’s wireless mobile phone average revenue per user was $58.26, down 3.4 per cent from $60.28 in the third quarter of the prior year.
This report by The Canadian Press was first published Nov. 7, 2024.
TORONTO – Canada Goose Holdings Inc. trimmed its financial guidance as it reported its second-quarter revenue fell compared with a year ago.
The luxury clothing company says revenue for the quarter ended Sept. 29 totalled $267.8 million, down from $281.1 million in the same quarter last year.
Net income attributable to shareholders amounted to $5.4 million or six cents per diluted share, up from $3.9 million or four cents per diluted share a year earlier.
On an adjusted basis, Canada Goose says it earned five cents per diluted share in its latest quarter compared with an adjusted profit of 16 cents per diluted share a year earlier.
In its outlook, Canada Goose says it now expects total revenue for its full financial year to show a low-single-digit percentage decrease to low-single-digit percentage increase compared with earlier guidance for a low-single-digit increase.
It also says it now expects its adjusted net income per diluted share to show a mid-single-digit percentage increase compared with earlier guidance for a percentage increase in the mid-teens.
This report by The Canadian Press was first published Nov. 7, 2024.
