Friday, January 11, 2008

Paperstand (BRKA, NRG, DYN, RAD)

The WSJ’s “Ahead of the Tape” column discusses Berkshire Hathaway (BRKA), whose shares have taken a beating in recent weeks. Reason: The co is heading into a soft mkt in one of its core businesses, reinsurance. How Mr. Buffett maneuvers could affect Berkshire's earnings in years to come. Berkshire, with its deep pockets and strong credit rating, can sell a lot of it. This is the time of year when many property-catastrophe reinsurance policies are renewed, and prices are weakening quickly. Prices fell 9%, on avg, for annual contracts renewed on Jan. 1, said Guy Carpenter, of Marsh & McLennan. Berkshire tends to retreat from the mkt when prices get soft, shifting into areas where it has pricing power. That explains Mr. Buffett's recent moves into bond insurance, a potentially lucrative niche amid recent bond-mkt turmoil. "Berkshire appears to be backing away" from reinsurance, Citigroup analyst Joshua Shanker wrote in a report. If true, that may affect Berkshire's ‘08 profit.

Barron’s Online highlights NRG Energy (NRG) and Dynegy (DYN), whose shares have fallen 16% and 34%, respectively, since touching highs in Oct. But US demand for electricity continues to rise steadily while the ability to produce more power is restricted. That should turn those low-voltage shares into power plays over the next few yrs. Dynegy and NRG have a strong presence in the tightest mkts in Texas, California and the Northeast. They look even more compelling based on their diversified electricity-plant portfolios, growth rates, strong mgmt teams and the reasonable value of their shares. Higher prices of natural gas that is used to produce electricity should bolster power rates and expand profits. Both co’s should also continue to use strong free cash flow to buy back shares. Eric Green, od PENN Capital Mgmt, says this is a buying opportunity b/c "we are going to have demand in electricity that increases every year, recession or not."

“Inside Scoop” section reprots that frmr Harrah’s Entertainment exec, Philip Satre bought $201K in Rite Aid (RAD) shares Tue, just 3 trading days after the stock tumbled 15% on disappointing sales figures. Satre acquired 96K shares. For Satre, who has been a Rite Aid director since ‘05, the transaction increased his direct holdings in the co by more than sevenfold. He now owns 108K shares directly, plus approximately 117K exercisable options.

No comments: