Warren E. Buffett is sending a clear signal that he believes Berkshire Hathaway's stock is undervalued by announcing a plan to repurchase stock for the first time since taking over the firm in 1965.
Berkshire said Monday that the company Buffett leads will repurchase its Class A and B shares anytime they are trading at less than 110 percent of book value.
Berkshire's Class A stock surged 8.1 percent, or $8,129, to $108,499 on Monday after the announcement. Its more affordable Class B shares rose $5.72, or 8.6 percent, to $72.09.
Book value is a measure of a company's value that Buffett often cites because it is similar to the intrinsic value figure he calculates to determine if an investment is overpriced. At the end of June, Berkshire estimated its assets were worth $98,716 per Class A share after liabilities were deducted.
That estimate doesn't include Berkshire's $9 billion acquisition of specialty chemical maker Lubrizol that was completed earlier this month.
Stifel Nicolaus analyst Meyer Shields said the repurchase announcement came as a surprise, but investors should realize that Buffett left the terms flexible so he hasn't committed to buying back any stock.
"He's just giving himself another tool to play defense with," Shields said.
Buffett talked about repurchasing Berkshire stock once before in his 1999 annual letter, but he never bought back shares because the price improved after he talked about it being undervalued.
Buffett did not immediately respond to an interview request sent to his assistant Monday.
Last week, Berkshire's Class A shares dipped below $100,000 for the first time since January 2010 as worries about the economy weighed down the overall market.
Berkshire's Class A hit an all-time high of $151,650 per share in December 2007. Its Class A stock remains the most expensive stock in the United States, but it has declined since February, when it was trading above $131,000 before several major disasters generated losses for Berkshire's insurance units. Berkshire recorded $1.7 billion in insurance losses related to the March 11 earthquake and tsunami in Japan, the Feb. 22 New Zealand earthquake and flooding in Australia.
When Buffett's investment partnership first bought Berkshire stock in 1962, the shares sold for $7 and $8 apiece. At that time, Berkshire was a New England textile firm.
Berkshire owns roughly 80 subsidiaries, including The Buffalo News. Buffett is the newspaper's chairman.