Earlier today, my post "Berkshire Hathaway: A $77,000 Steal" should have included the caveat that just because a stock is (relatively) cheap, doesn't mean it's a value. Granted, I did ask "how is it a deal?" without answering the question.
Here's a little help from hedge fund manager Whitney Tilson (via his email list, the full text of which will be posted on Seeking Alpha):
"At $84,000, Berkshire's stock today is the cheapest, by far, we have ever seen it, going back at least a dozen years (and it's below $80,000 as I write this). We estimate Berkshire's valuation the same way Buffett does: we value the investment per share (cash, bonds and stocks) at market then place a 12 multiple on the pre-tax operating profits of the company...As of the end of last year, investments per share were $90,343 and our estimate of normalized pretax earnings was $5,500-$5,700/share, which resulted in an estimate of intrinsic value of $156,300-$158,700.
As of the end of the third quarter, investments per share had fallen to $86,000 due to declines in the prices of stocks Berkshire holds as well as Buffett investing tens of billions of cash in a wide range of operating businesses. In light of the severe market decline in October and so far in November plus additional investments Buffett has made, we estimate that investments per share might have fallen to as low as $76,000.
As for Berkshire's earnings, they are obviously impacted by the weak economy, but this is offset by the many new businesses Buffett has purchased. Over time, the many investments and acquisitions Buffett's made this year will lead to much higher earnings, but for the next 12 months, to be conservative, let's assume that pretax earnings are $5,000/share (assuming the severe recession continues and a normal super cat year). This results in an estimate of intrinsic value of $136,000, 62 percent above today's level."
You may not agree with Tilson, but he makes a pretty strong case. You might also give this Berkshire Hathaway intrinsic value calculator a whirl.