Approximately 42,000 Berkshire Hathaway shareholders made the annual pilgrimage to Omaha, Nebraska to listen to Warren Buffett and his right-hand man Charlie Munger partake in nearly six-hours of questions and answers at the annual meeting of shareholders.
The famed investors touch upon every topic from their latest Apple share purchases and standing by Wells Fargo CEO Tim Sloan to comparing cryptocurrencies to “trading turds” and joking that Tesla founder Elon Musk might not want to take them on in the candy business.
In between all of that, there were four key takeaways for those investing in Berkshire’s stock, according to Barclays analyst Jay Gelb.
Berkshire’s open to a large acquisition in the developed markets
From Gelb: “1) Berkshire remains open to targeting a large acquisition (a year ago, management said it could target an all-cash deal up to $150bn) primarily in the US, but also in other developed nations.”
Berkshire has an approximately $110 billion cash pile to make a big acquisition.
“I just have to get the call from somebody,” Buffett told Yahoo Finance in a scrum of reporters. “I just want to hear about a big company that does something I understand that has a good business and a sensible price in mind.”
During the Q&A, Buffett said that they might be looking outside of the U.S. Though, he explained why he might avoid some of the emerging markets.
“I probably wouldn’t get into very small markets because there can be a lot of difficulties even in market execution and taxation,” he said.
Don’t expect a special dividend
“2) Warren Buffett dismissed the idea of a special dividend to return excess capital to shareholders, and he did not update his views on raising the share buyback threshold (currently up to 1.2x book value),” Gelb wrote.
Buffett and Munger were asked repeatedly about capital allocation and what they could do with that mountain of cash. As mentioned above, Buffett prefers to do an acquisition. And in terms of returning wealth to shareholders, he’s always preferred to do it in the form of buybacks rather than cash dividends.
“I can’t see us ever making a special. Or it’s very unlikely we would just pay out a big special dividend,” Buffett said. “I think that if we put that to the will of the shareholders… I think we would get a big negative vote.”
Companies will continue to seek out Berkshire after Buffett
“3) Buffett believes Berkshire would still be viewed as an acquirer of choice when he is no longer with the company based on Berkshire’s long-term track record of successful deals,” Gelb wrote.
Buffett noted that Berkshire has a reputation of being a desirable home for companies, particularly private companies, and that is “not dependent” on him or Munger.
Beware cyber risks
“4) Buffett affirmed that reinsurance is among Berkshire’s core businesses, and he sounded a warning on cyber insurance,” Gelb wrote.
“This is uncharted territory, and it’s going to get worse, not better. You’re right in pointing that out as a very material risk that didn’t exist 10 to 15 years ago, and will get more intense as time goes on,” Buffett said in response to a question about they’ll prepare for a cyber-related event.
Gelb maintained his neutral rating on the stock, but raised the price target of the A-shares to $367,500, up from $357,000.
Julia La Roche is a finance reporter at Yahoo Finance. Follow her on Twitter.
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