Determining if this telecom giant is worth buying
In the third quarter of 2020, an interesting position
appeared in Berkshire Hathaway's (BRK.A, Financial) investment portfolio:
Verizon Communications Inc.
I say this was an interesting investment because,
considering its size (around $9 billion), it seems as if Warren Buffett
(Trades, Portfolio) may have initiated this position himself.
Buffett has attacked large telecommunication companies in
the past. In a lecture several decades ago, he compared what was then AT&T
Inc. to a newspaper business, calling the former "the agony" and the
latter "ecstasy" of businesses.
At the time, Buffett attacked the telecommunications company
for its poor returns on invested capital, high capital spending requirements
and lack of growth.
However, since this lecture was published several decades
ago, Berkshire has been building its portfolio of infrastructure assets. As the
conglomerate has grown, it has had more and more cash it has needed to deploy.
One of the most effective ways to deploy a large amount of capital and achieve
a relatively reasonable return is to invest in infrastructure assets.
Today, some of Berkshire's most prominent businesses are
BNSF, a railroad, and Berkshire Hathaway Energy (BHE), a utility.
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