Under new CEO Greg Abel, Berkshire Hathaway (NYSE: BRK-B) is back in the buyback business. That indicates that opportunity may be afoot for tactical traders with the Direxion Daily BRKB Bull 2X Shares (BRKU ).
That ETF is designed to deliver 200% of the daily performance of shares of the conglomerate previously helmed by the legendary Warren Buffett. As a geared ETF, BRKU isn’t a buy-and-hold instrument. However, it’s a fund to keep an eye on for a simple reason: Berkshire Hathaway is signaling confidence and potentially value in its shares.
That much is highlighted in a recent proxy statement. The statement indicates that Berkshire repurchased about $226 million worth of its “A” shares on March 4. This marks the first time in nearly two years the company bought back stock.
More Signs of Confidence in Berkshire Stock
In more news that’s relevant to traders considering BRKU, Berkshire isn’t the only buyer of its shares. Abel tells investment community he’ll buy back the stock as long as he’s CEO.
“New CEO Greg Abel’s salary last year was $22 million, up from $21 million the year before. Last week, Abel told CNBC he used his entire after-tax salary to personally buy $15.3 million of Berkshire Class A shares,” reported CNBC.
The recent repurchase by Berkshire may be followed by more. Plus, the company is sitting on a famously large cash stockpile. That confirms that it has the financial firepower with which to significantly reduce its shares outstanding tally.
“The sizable buyback on March 4 indicates that the company could repurchase well over $1 billion in shares this month if that daily pace continues. The repurchases for the first quarter likely will be disclosed on May 2, the date of the Berkshire annual meeting when the company probably will release its first-quarter earnings and 10-Q report,” reported Barron’s.
Berkshire’s return to share buybacks is meaningful for another reason. Some experts believe Abel is likely to follow the path laid out by Buffett. If that’s the case, he would not make Berkshire a dividend-paying stock. At least not over the near-term.
“Initiating dividend commits you. And you have to keep paying it on a regular basis if that’s what you do. Yes, you could do a special dividend,” noted Morningstar’s Greg Warren. “That is an option. But then you leave shareholders wondering, well, when’s the next one? But if you gave me this because you said you had too much excess capital and now you have more capital than you did before … it just creates a lot of other issues. So, it’s fair to say that he’s going to sit on it for now, but it seemed a bit more dismissive than it needed to be in his verbiage.”
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