SoftBank’s stock returns top Berkshire Hathaway’s, but it falls behind in a price-earnings comparison. That’s because investors trust Berkshire’s Warren Buffett, while SoftBank’s Masayoshi Son still has to prove himself, a Bernstein analyst says.
Is Masayoshi Son the next Warren Buffett?
A note from Sanford C. Bernstein & Co. argues that Son’s SoftBank Group is the next Berkshire Hathaway.
“We like to think of SoftBank as a tech-focused Berkshire Hathaway,” analyst Chris Lane wrote, noting that investor returns have been similarly strong. In fact, Lane finds a lot that the Japanese and U.S. firms have in common.
For starters, both are hard to define, Lane writes. SoftBank uses cash from its core telecommunications operations to invest in companies positioning to be part of the future — like e-commerce, microprocessor designs and robotics. And there’s not much synergy among its units, Lane notes.
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Sound familiar? Berkshire leverages the cash from its insurance firm to invest into other businesses. Buffett’s company started out in the textile milling industry, but what does that have to do with NetJets or Coca-Cola, two of Berkshire’s most notable investments?
“The core business is ‘value investing,’ not insurance,” Lane wrote. “SoftBank’s core business is ‘tech investing.”’
Here’s where the two start to diverge: Son is beating Buffett at his own game, Lane says. Going back 10 years, investing in Berkshire would have netted returns of more than 120 percent. In that same time frame, an investment in SoftBank would have gotten you more than 300 percent. That track record extends to comparing the stocks to their respective benchmarks. Lane points out that from 2001 until now, Berkshire has outperformed the Dow Jones industrial average by 175 percent, while SoftBank has outperformed the Nikkei by 540 percent.
But when it comes to popular investment measures like price-to-earnings ratio, SoftBank is still trading at a big discount to Berkshire. Lane says that’s because investors trust Buffett, dubbed the Oracle of Omaha, while Son still has to prove himself, since so many of the bets are in the private market.
“So why don’t we hear about the sage of Tosu (Son’s hometown) or Tokyo (where he lives)? Whereas investors trust Buffett’s instincts and understand his value investing approach, they fear Masa’s big bets on the future,” Lane concluded.