NRG Energy: a better way to play Buffett?

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When I say “play Buffett” I meant people who follows Buffett investing strategy, more specifically people who buy and hold his company Berkshire Hathaway (NYSE: BRK.A, BRK.B) stock. This is not easy as Buffett’s strategy is not clear cut, and his company stock is mostly overpriced in recent years (because of his fame), not to mention doing homework on Berkshire is almost mission impossible (at least I felt I cannot understand his corner stone business: insurance). So here is a better way:

Buying the stocks Buffett bought

Master Series

Exelon NRG Energy saga continues

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(Presentation May 27) NRG Energy at Deutsche Bank Securities Energy & Utilities Conference.

(Noise from OptionMonster May 27) Options prepare for drop in NRG. I am not expert in Options, but I think stock price should affect option (derivative) price, not the other way around (as the NRG options shown in Yahoo Finance). Maybe guys at OptionMonster make more money from writing articles (selling Ads) compared to trading options 😀

(Daily Herald May 26) Analyst: Exelon will need to increase its bid for NRG

(Business Wire May 21) Exelon Receives FERC Approval for Proposed NRG Acquisition. Notice this is one of many regulatory hurdles EXC needs to overcome before the acqusition going through.

(WSJ May 15) Exelon CEO: If NRG Energy Bid Fails, Will Look Elsewhere

Notice earlier this year Exelon won 51% NRG shareholder via. the tender offer (WSJ article).

Master Series

Buffett NRG Energy average cost

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From gurufocus, we can see investor gurus like Buffett’s buy and sell actions, usually 45 after the close of a quarter. NRG Energy is an interesting one, because it’s going to build the first nuclear power plant in the US for 30 years, and the offer Exelon put up last Oct. (0.485 share of Exelon for each share of NRG). More interestingly, Buffett’s Berkshire started buying NRG since last year. Here is the transactions:

2Q 08: $42.40 * 3,280,100 = 139,076,240
3Q 08: $35.50 * (5,000,000 – 3,280,100) = 61,056,450
4Q 08: $21.50 * 2,200,000 = 47,300,000

By my calculation average cost Buffett paid for NRG is 247,432,690/7,200,000 = $34.3657

Buying a stock Buffett was buying gives one some comfort because Buffett usually did his homework, and adhere to his rules (business; moat; management; price etc). Buying a stock at discount of the price Buffett paid offers some margin of safety. BTW, NRG closed at $18.33 today, about 50% of the Buffett price 🙂

The main downside of NRG is more than 50% of shareholders already accepted the tend offer from Exelon (they surrendered). Exelon extends tend offer till June 26. So hold on the stocks, just like the Oralce of Omaha does.