In times of uncertainty, it can be useful to follow the lead of the best investors. One of Warren Buffett's recent investments, Chicago Bridge & Iron, is down 10%. Should you buy along with Buffett or is this stock headed down more?
Last month, tucked away in Berkshire Hathaway’s 13F filings, it was reported that Warren Buffett’s company bought $404 million worth of Chicago Bridge & Iron (CBI) stock. That represented about 6% of the Dutch-based energy infrastructure company.
When news of the Buffett’s purchase spread, shares in the company moved up, reaching its record highs of $64.91 a few days later. The excitement has since worn off and the stock is now down nearly 11% from that high, to around $58 per share.
And that price drop has one analyst excited about the stock.
Patricia Edwards, Principal and Chief Investment Officer at Trutina Financial, thinks Buffett got it right with CB&I. Edwards finds the company’s balance sheet to be strong with an 18.7% return on equity. And, there’s something in CB&I’s future that also makes Edwards bullish: its revenues. “There’s a huge $25.5 billion backlog that isn’t appreciated by the Street,” says Edwards. The company’s revenues over the last twelve months were $6.5 billion.
Not everyone thinks Buffett’s investment will pay off.
CNBC contributor Abigail Doolittle, Technical Analyst at The Seaport Group, thinks Buffett is going to lose most of his investment in CB&I. “It’s a chart of broken trends,” says Doolittle, looking at the stock’s price movement over the last twelve months. Doolittle’s assessment is based on the double top patterns – first in March, then with the Buffett news in May. Should the price break below $51, Doolittle believes its next target is $39. She doesn’t think it will stop there, either.
Doolittle believes the long-term chart is targeting as low as $5 per share. “Do I think CBI is going to $5? No,” says Doolittle. “But I do think CBI is rolling over.”
Will Buffett lose most of his $404 million investment on CB&I or is now a buying opportunity? Watch the video above to hear Edwards and Doolittle square off on this stock.
- Information Technology
- Warren Buffett