Do you think Warren Buffett was a Lone Ranger fan?
I bet he was, because he sure seems to like riding that white horse to the rescue. Berkshire Hathaway’s (NYSE:BRK.A) announced $5 billion investment in Bank of America puts him back in the role of hero. It is said he only recently thought of making the investment while sitting in his tub this week.
He probably secretly donned the mask, waved his loofah and yelled, “Hi ho Silver, away!”
For the second time since the financial collapse of 2008, Buffett is bringing his substantial war chest of capital to the financial services industry under the auspices of providing confidence and support to the economy and the United States of America.
Make no mistake: He is doing this deal to make big money. Buffett knows a bargain when he sees one, and given that he is one of few capable of making an investment of any meaningful size, he gets to dictate terms. In this go-around he gets a 6% coupon plus warrants to buy common shares of Bank of America at very depressed levels.
Given how he fared on his deal with Goldman Sachs, I’m sure he will do similarly well here. More importantly, the deal fuels his ego for being the investment god and savior that he is. My only question: Why doesn’t he do more of this bottom feeding?
Given the selling in the market, there certainly are plenty of candidates for him to come riding in to save the day. Stocks are lower across the board. Perhaps he is already actively buying below the radar screen and we have yet to hear about it.
One thing I do know is there are many beaten-down stocks he wouldn’t touch no matter the price. Buffett’s dossier is well known. There is no way he changes his stripes now. If you are holding one of these five beaten-down stocks waiting for Buffett or some other angel to come to the rescue, don’t hold your breath.
Like Bank of America, Hewlett-Packard (NYSE:HPQ) shares have sold off hard during the recent market correction. The technology company has seen its stock sink 32% since July 22. Fueling that decline were dramatic moves by management amid a gloomy forecast for the future.
One thing Buffett does not buy is technology. He claims to not understand these stocks like he does insurance, banks and other basic industrial concerns, and he readily admits to missing out on several opportunities to buy low over the years. Hewlett-Packard might or might not be attractive at these prices, but there is no Warren Buffett waiting in the wings to show support for this wounded technology company.
Research In Motion
Despite Buffett’s reticence to own technology companies, he does buy things that he uses or places where he shops. He loved See’s Candy, so he bought the company. He did the same thing with Dairy Queen. But because Buffett does not own a cell phone, it is unlikely he will come to the rescue of falling personal phone and data device maker Research In Motion (NASDAQ:RIMM).
RIM has seen its fortunes change dramatically. Apple has effectively destroyed the company. Since earlier this year, the company has seen its stock value plummet by 60%. At currently depressed levels, the only buying here is on speculation that someone will come to the rescue. It won’t be Buffett.