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Awaiting a Valuation Sign From the Oracle of Omaha

Berkshire Hathaway (BRK.A) has sunk 50% or so from its peak in October 2008. Is the insurer's stock a bargain? Watch CEO Warren Buffett for clues as to how he thinks Berkshire, whose B shares are trading around 2400, is valued. In his much anticipated annual report to shareholders, the legendary investor again indicated he is itching to make some purchases. The way he finances acquisitions could provide a buy or sell signal. When Buffett uses stock to pick up a company—as he did with General Re back in 1998—it's generally considered a sign that he believes Berkshire shares are overvalued. (He had used both cash and stock to buy ice cream chain International Dairy Queen earlier that year.) From mid-1998 to early 2000, Berkshire's stock lost nearly half its value. But after Buffett shelled out $5.1 billion in cash to buy utility PacifiCorp in 2006, the shares jumped more than 55% over the next two years. Says Mark Hirschey, business professor at the University of Kansas: "If he prefers cash to stock, it means he believes Berkshire is too cheap to use as currency."

An Earnings Eclipse at First Solar

Shares of First Solar (FSLR), the Tempe (Ariz.)-based maker of photovoltaic cells, had been holding up somewhat better than the rest of the solar industry—at least until Feb. 24. That's when the company reported fourth-quarter earnings, along with a startlingly glum outlook for 2009. First Solar said it would have to help some of its customers finance upcoming projects, cutting into 2009 revenue. CEO Michael Ahearn also noted that 10% to 15% of current orders could vanish if clients default. Shares plummeted 20% over the next week and dragged down the sector. "First Solar is not immune from absolute demand destruction that is materializing in the wake of the global economic malaise," wrote Jonathan Hoopes, an analyst at research firm ThinkEquity. He recommends investors sell the stock.

Shrinking Yields

The seven-day average yield on money market funds fell to 0.33% on Feb. 24. Yields could go lower if anticipated suggestions from industry group Investment Company Institute for governing the funds are adopted. Peter Crane, of the Money Fund Intelligence newsletter, expects the ICI to seek to eliminate exposure to the lower-rated, higher-yielding debt that became hard to trade last fall, and to recommend funds shorten the maturity of holdings. "The guys who have been aggressively juicing yields by stretching credit quality...won't be able to play that game anymore," says the head of a money fund group at a big mutual fund company.


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