“It strikes me as a business that’s right up his alley,” said Jeff Matthews, an investor and author of Buffett-related books. “It’s a business that’s going to last for a long time,” he said. And the stock has “gotten crushed,” creating an opportunity to buy at an attractive price.
Oil drillers, gold miners and rig operators have sacrificed dividends to conserve cash amid tumbling prices in oversupplied commodity markets. When Kinder Morgan cut its dividend, it pledged not to issue any new shares through the end of 2018.
Kinder Morgan jumped 7.5 percent to $16.79 at 6:50 p.m. in extended trading in New York. Berkshire’s portfolio is closely watched by investors for clues into how the billionaire chairman and his backup stock pickers are thinking. Newly disclosed holdings often send shares higher.
One of Buffett’s deputy investment managers, Todd Combs or Ted Weschler, could be responsible for the investment. Both have been building portfolios at Berkshire and tend to make smaller bets than their boss.
“Our guess is that it’s Todd or Ted,” said Tony Scherrer, director of research at Smead Capital Management, which oversees about $2.1 billion including Berkshire shares. “It’s not insignificant, but it doesn’t smell like a straight-up Buffett move to us.”
Other closely watched investment managers added holdings in the energy industry during the fourth quarter. David Tepper’s Appaloosa Management bought shares of Kinder Morgan and Energy Transfer Partners LP, while Seth Klarman’s Baupost Group increased its positions in Antero Resources Corp., an oil and gas producer, and Cheniere Energy Inc.
At the Daily Journal AGM in 2014 Charlie Munger mentioned that Berkshire was set to become the biggest utility in the country. The acrimonious dispute with solar companies in Nevada highlights its participation in that power market but that only gives a small window on the kinds of businesses Berkshire seems to buy. The short answer could be that they tend to buy companies whose products are used every day. That’s as true of Coca Cola as it is of railroads, electricity and now pipelines.
Kinder Morgan cut its dividend by 75% in December and justified the move on the basis that it did not want to dilute the holdings of existing shareholders with further stock issuance. The decision was met with abrupt selling pressure but the downtrend began to lost momentum and posted a large upside weekly key reversal toward the end of January. A reversionary rally now appears to be underway and a sustained move below $15 would be required to question current scope for additional upside. I’ve also now introduced an in-the-money stop on the long I opened in Kinder Morgan on January 22nd.
Berkshire Hathaway has been trending lower since December 2014 and will need to sustain a move back above the 200-day MA to signal a return to demand dominance beyond short-term steadying.