Brasil Foods (Nasdaq: BRFS) jumped on Friday on the rumor that Warren Buffett's Berkshire Hathaway (NYSE: BRK.A) started buying shares and aims to hold 5% of the company.
I have my doubts about this one.
The rumor appears to be coming from Sao Paulo's Valor Economico – a joint venture between Globo and Abril (two of the largest media companies in Brazil) and one of the largest business-oriented papers in the country. So it is not as though this is coming from a paper that routinely publishes stories about alien abductions or Kim Kardashian's latest boyfriend.
That said … well, let's say I have my doubts. The story talks about “fund managers” from Berkshire visiting Brasil Foods a week or so ago, and then the company buying in the wake of those visits. Perhaps this is an artifact of translation, but I think we all know that Mr. Buffett doesn't exactly employ “fund managers” as we commonly think of the term. “Company representatives/executives?” Sure, why not. But “fund managers”? I don't think so.
And now there's a story on Bloomberg quoting a Brazilian investment manager talking about how people are speculating that Buffett/Berkshire will ultimately buy 5% of the company. To be fair, he's not claiming to have any first-hand knowledge himself, but I get suspicious when the only source for a story is “speculation”.
Now don't get me wrong – I would be thrilled to hear Warren Buffett talking up and buying up Brasil Foods. My history with this stock goes back to Sadia and the disastrous currency speculation fiasco that led it to accept a merger with Perdigao. Even though I'm still down quite a bit from peak valuation, I have a nice profit here and I think the company can continue to thrive. After all, there's a long-held trend in history that higher household incomes go hand-in-hand with more meat consumption and Brasil Foods is a very cost-effective meat producer with an excellent export business.
On top of that, this would be a pretty solid Buffett-like way to play the growth in the emerging markets. Let's be honest, Buffett is not going to buy some crappy Chinese shell company headquartered in the Caymans and audited by an accounting firm operating from Malawi. If Buffett is going to play emerging markets, it's going to be in relatively stable and well-run businesses – like his prior involvement with PetroChina (NYSE: PTR). So, as one of the world's emerging powers in protein, with large domestic and export exports, and a good local cost advantage, Brasil Foods makes some sense.
On the other hand, Brasil Foods is not shockingly cheap and there is the risk not only of recurrent inflation in Brazil, but global trade hangups (like Russia's stated goal of becoming self-sufficient in chicken and periodically banning imports from certain countries). Now Buffett does not always subscribe to other people's notions of “cheap”, but I'm not convinced Brasil Foods meets the Buffett margin of safety requirements.
Whether Buffett agrees with me or not, I'm likely to hang on to these shares for a while. After all, I like it for the same reasons he presumably would – a well-run emerging markets company with low costs and high leverage to rising global standards of living, coupled with a good play on rising on food costs (assuming that the company can continue to pass on higher grain costs and so on).
Buffett involvement or no, I would BUY shares of Brasil Foods.
Disclosure: I own shares of BRF Brasil Foods
No comments:
Post a Comment