Berkshire Hathaway it’s just too big to invest in Cowen-A, a small-cap investment bank that has generated record income in the last year. The shares obtained a 67% yield last year and have uploaded a 50% this year, according Dave Kovaleski en The Motley Fool.
Warren Buffett, Chairman and CEO of Berkshire Hathaway, is a legend in the investment world. Your portfolio movements are closely scrutinized and your statements can move the markets. Buffett’s investment strategy is very rigorous, as he only buys stocks that meet his criteria and are consistent with his philosophy.
But there is one type of stock that Buffett really can’t invest in, even if he wanted to: small caps. Your company is simply too big. An investment from Buffett and Berkshire would move the price too much and change its valuation.
Therefore, as Warren Buffett said in 1999, you have to stick to elephants and not mosquitoes: “The universe that I can’t play in has become more attractive than the universe that I can play in. I have to look for elephants. Elephants may not be as attractive as mosquitoes. But that is the universe in which I must live ”.
A small investor has that problem, as they can invest in quality, small-cap value stocks without incident. One stock to consider is Cowen, an investment bank with a market capitalization of just over $ 1 billion; it is extremely undervalued and has shown strong annual growth over the last decade.
Cowen is one of the leading independent investment banks in the middle market of the United States. It specializes in identify emerging industries, such as cannabis and biopharmaceuticals (where you are considered a market leader). Cowen is also a leader in the middle market of agreements with special purpose acquisition companies (SPAC). In the first quarter, SPAC deals accounted for more than a third of Cowen’s revenue in what was a record quarter. But CEO Jeffrey Solomon told S&P it would have been the second-best quarter on record even without SPAC’s revenue.
In the second trimester, revenue fell 29% year-over-yearBut that was compared to the same period in 2020, which in itself was a record. The decline came primarily from a reduction in investment income, but despite a general slowdown in capital markets, it actually saw an increase in investment banking income year-over-year. In presenting the results, Solomon said:
“The second quarter of 2021 was a clear demonstration of the bank’s core earnings power and the increasing breadth and depth of our capabilities across the platform. It was the third best quarter ever for investment banking and markets and the fourth best quarter overall in terms of revenue and profitability. ”
With a solid project portfolio that has increased a 80% Compared to the prior year, and with more than a third of the portfolio transactions being SPAC, Solomon is optimistic about the continued growth of the company. The company has also been able to diversify beyond its strength in the medical care, with the 55% of revenue in the second quarter from other sectors, led by the consumer and technology-enabled services. At Monday morning prices, the stock is up about 50% this year after gaining 67% in 2020.