Warren Buffett: General Electric
It’s tough to question any choice Warren Buffett makes, but just because Berkshire Hathaway (NYSE:BRK.A, BRK.B) portfolio sold about a third of its stake in General Electric (NYSE:GE) last quarter doesn’t mean investors should follow that lead.
To give credit where it’s due, Buffett made good money on the GE trade … an investment that goes all the way back to 2008 when he forked over $3 billion to the struggling company. Remember, however, that he also got a honey of a deal in that he was granted a special breed of preferred shares, a portion of which the company bought back last year. The sale of General Electric last quarter whittles his position down to about 5 million shares. But why is it a mistake to sell some of that position now?
While the stock is up since 2009, the past three years from GE aren’t going to look anywhere near as good as the next three.
After the 2008 drubbing, General Electric began a major overhaul. It got (mostly) out of the risky finance business, and waded heavily into green-energy waters. It was an effort that took three years to complete, however, with the labor just now starting to bear fruit. Translation: Buffett sold out before things got really good. Next year’s expected per-share income of $1.73 is better than this year’s likely $1.54, which is better than last year’s profit of $1.37 per share. By 2014, it’s going to be within striking distance of 2007’s record profit of $2.20 per share. It’s the kind of industrial-based earnings growth that Buffett usually leans toward.