Berkshire's Rise Draws Sell Call: Chart of Day

Berkshire Hathaway Inc., run by billionaire investor Warren Buffett, became a victim of its own success when a brokerage analyst reduced the company’s shares to “sell” for the first time in six years.

The CHART OF THE DAY compares the year-to-date performance of Berkshire’s Class A stock and the Standard & Poor’s 500 Index in the top panel. Both were set to 100 at the start of the year. The percentage-point gap between the shares and the index is displayed in the bottom panel.

When the latter reaches 30 points, Berkshire’s shares are typically “at a turning point for a correction,” Meyer Shields, an analyst at Stifel Nicolaus & Co., wrote today in a report. This year’s differential peaked at 29 points on June 30.

Shields reduced the stock’s rating to “sell” from “hold.” He was the first analyst to do so since April 2004, when Gary Ransom made a similar downgrade, according to data compiled by Bloomberg. Ransom was an analyst at Fox-Pitt Kelton Inc. at the time. He later left the firm.

Berkshire’s second-half earnings are likely to suffer as U.S. economic growth slows, Shields wrote. In addition, falling share prices will be a “double whammy” by reducing the value of its stock holdings and equity-derivatives contracts, he wrote.

“Fair value” for the Class A shares is about $104,000, or 13 percent lower than yesterday’s close, according to Shields. His estimate amounts to $69.33 for each Class B share, which closed yesterday at $79.92.

EVA Dimensions LLC also has a “sell” rating on Berkshire, Bloomberg’s data show. EVA’s calls on U.S. stocks are “purely formulaic and quantitative,” according to the research firm’s Web site.

(To save a copy of the chart, click here.)

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

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