Cramer: Truth of Facebook vs. Berkshire
Jim Cramer | email@example.com
One is run by a fast-moving, young, hard-charging entrepreneur who is filled with ideas that only true visionaries can think of. The other is run by older management that has taken a hands-off view of its assets and talks a bigger game than it has.
I didn't want to write this piece. I think the world of Warren Buffett, and he has made money for hundreds of thousands of people, including many who are now millionaires. It's been a fabulous run. But right now the company has neither growth nor dividend and is, alas, worth more dead than alive.
That's right, the breakup value of Berkshire Hathaway well exceeds its current value. Without a breakup, which is clearly not in the cards right now, there's not much hope for appreciation. The stock has underperformed the market drastically and, judging by the talks over the weekend, it will continue to do so because management is contented with its current stance.
It is also painful to say that Facebook should be the stock everyone wants, because it has no earnings and no track record as a public company. But its growth rate is staggering, and management hasn't even scratched the surface of ways to make money. Facebook has become the de facto you, with all of your information, your pass codes, your history.
It is the first company where you may not have to click on the ads to reward advertisers. There's going to be some demand by some advertisers for that, particularly on mobile, but the question will come down to, which is more able to reach the coveted younger demographic: magazines, newspapers, billboards, television, or the de facto Internet identification of a billion people, where Facebook is headed?
Of course, Facebook will be inherently overvalued from the get-go because of its lack of earnings, but I want you in on the IPO anyway because it will make you money.
Berkshire Hathaway will be inherently undervalued until Buffett steps down as CEO. Without earnings growth, without a catalyst like a breakup, without a dramatic housing recovery, it can't outperform.
Of course, there are a number of ways that Berkshire could change things. It could pay a huge dividend, which has helped stocks dramatically. Look at Verizon or AT&T. It could break itself up. Look at the success of the old Philip Morris or Fortune Brands.
But Warren Buffett just hates both alternatives, and his set-in-the-ways-of-Warren attitude will preclude any sort of secular growth. He boasts of being able to do big acquisitions when the market has wanted big spinoffs and breakups for ages, and that shows that has been out of step for more than a decade. I put it that way because Buffett would tell you that such actions are flavors of the month when they've actually been flavors of the decade.
The market loves growth. That's Facebook. It hates stagnation. That's Berkshire Hathaway.
If decorum, honesty, and folksiness added value, the contest would be easy: Berkshire wins hands-down. Unfortunately, those qualities have nothing to do with stock appreciation.
You grow, you bring out value, you pay a dividend. You have to give us one of those. Berkshire gives us none.
Disclosures: Cramer's charitable trust has no positions in any of the stocks mentioned.