Lousiana-Pacific Rallies After Warren Buffett Takes Stake: Why This PreMarket Prep Co-Host Isn't Buying

There is almost always a positive reaction in a stock when Warren Buffett’s Berkshire Hathaway Inc (NYSE: BRK-A) (BRK-B) announces his firm has taken a stake. What the issue does in the regular session sometimes differs. That is certainly the case with wood siding manufacturer Louisana-Pacific Corp LPX, which is the PreMarket Prep Stock of the Day.

Recent LPX Price Action: Early in the month, Louisiana-Pacific bottomed at $50.59 and has participated in the recent rally with the S$P 500 index.

On Friday, the issue posted its high for the recent rebound ($60.64) and closing high ($59.98). This marks the first time the issue has traded over $60 since August.

Buffett’s Stake: After the close Monday, it was announced in a 13-F filing that Berkshire Hathaway had taken a $297-million stake in the building material company. This is one of the few new stakes revealed in the filing. Keep in mind the 13-F is a quarterly report and reflects activity from the last three months.

In other words, Buffett’s stake came at much lower prices than Tuesday’s opening, as the price range over the last three months was from $48.20-$65.74. Over the course of time, investors had plenty of opportunities to purchase the issue in the low-to-mid-$50 handle.

PreMarket Prep's Take: When the issue was being covered on the show, it had already spiked to its after-hours high from Monday at $65.70. Co-host Dennis Dick alluded to where Buffett might have purchased his stake. 

“Buffett did not buy the stock up 10% at the $65-$66 area," Dick said. "Perhaps he was buying at the $55 area and is now sitting on a profit."

DIck said he is not chasing the stock at current prices. 

“If you want to participate in what Buffett is doing, it is better to just buy his stock.”

The author of this article was leery of the rally as well. It was emphasized that the after-hours high coincided with a daily high from Aug. 1 ($65.74) and may attract sellers if that area was revisited.

LPX Price Action: After a much higher opening ($64.92 vs. $58.90), Louisiana-Pacific continued to the aforementioned resistance area, peaked at $66.12 and reversed course. As of 2:15 p.m. EST, it had come down to make a new for the session ($63.01) and ultimately ended Tuesday's session 7.84% higher at $63.52. 

The discussion on the issue from Tuesday’show can be found here:

Photo via Shutterstock.