This group of stocks is among the first to roar back to all-time highs

Software stocks are among the first to fully make back the December losses, beating the market and the rest of the technology sector.

The S&P 500 Software index touched its all-time high on Thursday, roaring back more than 23 percent from its Christmas Eve low. The stand-out performance is driven by the group's immunity to the China trade war which hurt other technology companies, especially chipmakers. The secular trend of cloud technology and the booming M&A activities are also boosting the sector, analysts said.

Source: FactSet

"They don't have raw materials that are imported. [Tariffs] have more to do with chip companies, technology and raw material companies," said Joel Fishbein, software and cloud technology analyst at BTIG. "There were pullbacks but they were not as dramatic. We are at a secular boom right now for software which we think will continue for several years."

The group's comeback is stronger than the S&P 500 which rebounded 18 percent from its December bottom. Software companies also held up well in the stock market's worst December since the Great Depression.The 13-name S&P 500 Software index lost 8 percent that month, in line with the S&P 500's 9 percent bleeding.

The index includes Microsoft, Autodesk, Intuit, Red Hat, Adobe and Oracle. Software giant Microsoft recently regained the crown as the world's most valuable company with $860 billion in market cap as of Thursday.

#dw-chart{width: 100%;height: 500px;border: none;padding-top: 32px;box-sizing: border-box;-moz-box-sizing: border-box;-webkit-box-sizing: border-box;}

"Business is really good for these software companies," said Patrick Walravens, director of technology research at JMP Securities. "Part of the reason business is good for software is because there are a couple of really big trends driving it. The first one is the whole idea of digital transformation, and even though it's 10 years old, but this move to the cloud is still going strong. The icing on the cake is there's a lot of M&As."

Analysts are also hiking their projections on cloud software companies. Piper Jaffray on Wednesday reiterated their overweight ratings and raised price targets for Workday, Salesforce.com, and Splunk.

Investors also poured more than $560 million to the $2.6 billion iShares North American Tech-Software ETF in the first two months of 2019. The ETF has delivered a 20 percent return year to date.

Why GW Pharmaceuticals, MercadoLibre, and IMAX Jumped Today

Wednesday was another up-and-down session on Wall Street, with major stock indexes initially seeing substantial losses but gradually clawing their way back higher. Initially, investors reacted negatively to news of an escalation in conflict between India and Pakistan, but more favorable economic readings in the U.S. seemed to soothe market participants' nerves. Some positive news on the earnings front also helped lift sentiment, and most key benchmarks finished close to unchanged. GW Pharmaceuticals (NASDAQ:GWPH), MercadoLibre (NASDAQ:MELI), and IMAX (NYSE:IMAX) were among the top performers. Here's why they did so well.

GW gets higher

Shares of GW Pharmaceuticals jumped 14% after the pharmaceutical company reported its fourth-quarter financial results. GW celebrated the launch of its epilepsy treatment Epidiolex, which is the first treatment approved by the U.S. Food and Drug Administration that is derived from cannabis plants, during the quarter. Sales of the drug amounted to just $4.7 million, but the company saw 4,500 new patient enrollment forms and more than 500 physicians issuing prescriptions for Epidiolex. Moreover, with additional indications in the pipeline as well as a promising slate of other drug candidates, investors are excited about the prospects for the marijuana drug stock.

Image source: GW Pharmaceuticals.

MercadoLibre moves higher

MercadoLibre's stock price soared 21% following the Latin American e-commerce giant's latest report on its financial performance. Despite substantial headwinds from foreign currency fluctuations, sales for MercadoLibre climbed 20% as measured in U.S. dollars, with 62% revenue growth measured in currency-neutral terms. Performance from the company's marketplace business was mixed, but strong gains in the MercadoPago payment service helped drive overall growth. Moreover, the e-commerce specialist sees further gains likely in 2019, especially if efforts to monetize its marketplace more effectively prove successful. After a long period of stagnation in last year, MercadoLibre investors hope that this will mark a new phase of growth for the company.

IMAX shows a pretty picture

Finally, shares of IMAX picked up 9%. The big-screen theater operator said that revenue fell 13% during the fourth quarter of 2018 compared to the previous year's period, with adjusted net income declining by 25%. Yet given the meager lineup of films out of Hollywood this year, the results weren't a surprise to investors, and CEO Richard Gelfond noted that 2019 looks a lot more promising in terms of blockbuster movies expected for release. With ongoing expansion in the number of theater systems in its worldwide network, IMAX expects to capitalize on continued demand for high-quality entertainment content across the globe.

The Big Berkshire Hathaway Buyback No One Is Talking About

Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) shareholders undoubtedly noticed that the company repurchased a small amount of stock in the fourth quarter, with purchases at prices as high as $207.17 and as low as $197.30 per Class B share. That activity suggests that at prices around $197 to $207, Warren Buffett views Berkshire Hathaway's Class B shares as a bargain.

But there was an equally important Berkshire buyback that went largely unnoticed. This month, Berkshire Hathaway Energy (BH Energy), one of the company's largest operating businesses, spent about $293 million buying back its shares, giving investors rare insight into how Berkshire values one of its most important units.

What's Berkshire Hathaway Energy worth?

Berkshire Hathaway isn't the only owner of BH Energy. The Omaha conglomerate owns most of its shares (roughly 90.9% of the company). Walter Scott Jr., a Berkshire Hathaway board member, and his family own about 8.1% of it. Greg Abel, executive chairman of BH Energy and vice chairman of noninsurance operations at Berkshire Hathaway, owns roughly 1% of it.

Warren Buffett at Berkshire Hathaway's annual shareholder's meeting. Image source: The Motley Fool.

BH Energy shares aren't publicly traded and haven't been since Berkshire acquired its predecessor, MidAmerican Energy, from the public markets. Thus, when owners want to buy or sell shares, they transact with one another, albeit indirectly, by selling shares back to BH Energy. That happened most recently in February 2019, when BH Energy disclosed that it bought back 447,712 shares of stock at a cost of $293 million, or $654 per share.

Using this buyback as a guide, this suggests that BH Energy's equity is worth just over $50 billion, or about 1.7 times book value, 19.5 times earnings in 2018, and 17.5 times earnings in 2017.

An appreciating giant

Since 2015, BH Energy has repurchased stock in all but one year (2016), giving outsiders a glimpse into how BH Energy's owners value it from year to year. Over that period, shares of BH Energy have increased in value from roughly $480 per share to $654 per share.

Year

Shares Repurchased

Price Paid

Implied Value per Share

2015	75,000	$36 million	$480
2017	35,000	$19 million	$543
2018	177,381	$107 million	$603
2019	447,712	$293 million	$654

Data source: Berkshire Hathaway Energy filings. Calculations by author. Value per share rounded to three digits.

An investment for the long haul

Of course, Berkshire Hathaway owns BH Energy as a long-term investment that allows it the opportunity to deploy billions of dollars into (mostly) regulated utility projects on which it can earn a reliable return over the course of decades. The utility business isn't one it got involved in for a quick flip.

Consider that in the 19 years since its acquisition, BH Energy hasn't paid so much as a dime in dividends to its owners. BH Energy's latest annual report notes that it "has not declared or paid any cash dividends to its common shareholders since Berkshire Hathaway acquired an equity ownership interest in [BH Energy] in March 2000, and does not presently anticipate that it will declare any dividends on its common stock in the foreseeable future."

Instead, virtually all the company's earnings power is directed toward additional projects and acquisitions, often putting cash to work in the same year it is earned. A well-oiled machine, BH Energy's cash flows from investing activities in any given year match almost perfectly its cash flows from operations. Berkshire Hathaway, the publicly traded holding company, may have too much cash, but that's never been a problem for BH Energy.

The company's policy of immediately reinvesting in new projects goes a long way to explain why owners who aren't named Berkshire Hathaway occasionally sell shares of BH Energy in negotiated transactions. That it also gives outsiders a view into how some of the energy industry's smartest minds appraise BH Energy is just a convenient wrinkle.

3 Things to Watch When Denbury Resources Reports Its Q4 Results

Last year was one that investors in Denbury Resources (NYSE:DNR) will want to forget. While shares of the oil producer rocketed more than 200% at one point, the stock gave up all those gains and then some as oil prices crashed and the company made a head-scratching offer to buy shale-focused driller Penn Virginia (NASDAQ:PVAC).

Denbury will officially put 2018 behind it this week by reporting its fourth-quarter and full-year results. Here are a few things to keep an eye on in that report.

Image source: Getty Images.

1. Look for an update on its merger with Penn Virginia

All eyes will be on the latest update of the company's proposed merger with Penn Virginia. While Denbury initially expected that deal to close during the first quarter of this year, it has run into intense opposition from shareholders on both sides of the transaction who question the strategic rationale. Not only would the merger combine two companies with entirely different business models, but the significant decline in oil prices since the announcement has materially weakened Denbury's financial position and the anticipated benefits from this transaction.

Because of the growing opposition to the deal, Denbury could opt to walk away. Given that possibility, investors should see what the company says about this transaction and whether it remains committed to completing the deal.

2. See how the company fared compared to its guidance for 2018

When Denbury reported its third-quarter results in early November, it also provided investors with an update on its progress toward achieving its full-year guidance for capital expenses and production. At that time, Denbury noted that it had spent $215 million in capital through the third quarter, which had it on pace to invest at the upper end of its $300 million to $325 million budget range. Ideally, the company will end the year spending below the top end of its forecast, especially since oil prices crashed during the quarter.

Despite spending toward the top end of its guidance range, Denbury estimated that its full-year production would average between 60,100 and 60,600 barrels of oil equivalent per day (BOE/D), which was toward the low end of its original 60,000 to 64,000 BOE/D guidance range. The hope is that the company was able to outperform those expectations. Otherwise, Denbury would end up spending at the high end of its budget while producing at the low end of its forecast, which would suggest it did a poor job both operationally and in allocating capital in 2018.

3. Check out its outlook for 2019

Denbury has yet to unveil its 2019 capital budget and production guidance, likely due to the uncertainty surrounding its merger with Penn Virginia. However, the company will likely provide at least a preliminary look at 2019 along with its fourth-quarter results.

With oil prices crashing at the end of last year, most U.S.-focused oil companies plan to invest less capital in 2019, with the majority aiming to spend within the cash flows they can produce on $50 oil. The hope is that Denbury Resources will do the same since that would enable the company to generate free cash flow to help pay down debt, as oil prices are currently in the mid-$50s.

All eyes are on the Penn Virginia deal

While Denbury Resources believes it has a solid strategic rationale for acquiring Penn Virginia, investors remain unconvinced. The company could walk away from the deal, but that would impact its near-term growth prospects since it saw Penn Virginia as an accelerant to help restart its production growth engine. Given the uncertainty surrounding that deal, shares of the oil producer could swing wildly this week depending on what it decides to do.