FORTUNE — Be cautious about U.S. stocks and, especially, bonds. Europe is a good value. Berkshire Hathaway’s stock is no longer a buy, but Apple may be. That was the general feeling of investors gathered here in Omaha for Berkshire Hathaway’s annual meeting.
The mood about the market matched the weather, rainy and unseasonably cold. That didn’t keep away the tens of thousands of investors, many professional, who pour into in this city each year for a weekend to hear Warren Buffett opine on his company’s stock, the economy and the market in general.
Buffett typically delivers an upbeat take on the economy and America especially. When the doors at the Centurylink Center opened at 6:30am Saturday, people who had been waiting outside in the dark and cold for hours dashed between rows of seats on the floor of the arena to get as close to the stage where Buffett will be speaking as possible.
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After a few years of trouble, Buffett seems to have more backing for his bullish view. Friday’s jobs report showed that the economy added more jobs than expected. For the first time in five years, investors are putting more money into the market then they are pulling out. Stocks have hit new all-time highs recently.
Once again, though, Buffett’s faithful seem out of step with the rest of the market. Investors speaking at a dinner sponsored by Mario Gabelli to benefit the Heilbrunn Center for Graham & Dodd Investing at Columbia University, where Buffett went to graduate school, said the stock market rally seems to be getting ahead of itself. Berkshire, too, no longer seems like a great bet. That was a near 100% about-face from a year ago, when the same group was mostly bullish on the shares of large companies and Berkshire (BRKA) in particular. The dinner, once again, was held at the downtown Omaha Hilton, which is across the street from the Centurylink Center, where the Berkshire annual meeting is held, and where lots of professional investors typically congregate on the first night of Buffett’s annual weekend.
Leon Cooperman, a Goldman Sachs (GS) alumni who runs the $8 billion Omega Advisors hedge fund, said he thought corporate profits would disappoint investors. “The Federal Reserve has created an environment where there is no better asset than equities,” Cooperman said. But when the Fed removes its stimulus, the market could suffer. Europe is a problem, because leaders there have been slow to address their problems. And the companies and parts of the economy that have benefited for a while from government spending are likely to be hit as Washington curtails spending and deals with the national debt. “I would stay away from any company that has benefited from the deficit,” says Cooperman. “Their pockets are about to get unlined.”
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Bruce Greenwald, Columbia’s renowned investing professor and the Director of Research at FirstEagle Funds, said the economy was going to be stuck in a very slow growth environment. The housing recovery isn’t going to be strong enough to drive the economy up, he said. U.S. households will have to save more and spend less. China and Japan are both going to hold down their currencies, thwarting growth of U.S. exports.
Tom Russo of Gardner Russo & Gardner said he thought people were overstating how much new technologies that were boosting natural gas production in the U.S. and driving down prices would help the economy. Greenwald agreed. Energy prices don’t matter as much in a service-driven economy. “A manufacturing rebirth in the U.S. is just as possible as us going back to agriculture based economy,” says Greenwald. “The cost structure doesn’t work.”
Gabelli, for his part, was most worried about the Fed’s bond buying program, which has held down interest rates: “Will the Fed be able to exit without undo risk to the economy and market? I don’t think so.”
All of the investors on the panel, which also included David Winters of the Wintergreen Fund, seemed concerned about a potential bubble in the bond market. Cooperman said investors could lose as much as 20% in the bond market in the next three years. He said high yield bonds were particularly unattractive. Greenwald said the Fed is an investor with lots of demand that’s not driven by the fundamentals, one that will change its mind just as things are getting better. “The question is whether you want to invest along side that,” says Greenwald. “My answer is definitely not.”
Even Berkshire didn’t garner a lot of enthusiasm among the investors at the dinner, all of which have been long-time Buffett fans. Cooperman, who said he wouldn’t own the stock, said Buffett, who is turning 83 in August, will have a hard time finding someone else who can run such a large stable of businesses. Berkshire owns everything from railroads to a company that makes running shoes. Russo and Winters say Berkshires shares, which are up 33% in the past year, no longer look like a good value.
Gabelli was the only investor at the dinner who was still bullish on Berkshire’s shares. He said he thought they could rise 10% a year for the next five years. After that, he said he too was nervous about the succession issue.
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Russo and Winters both thought the best investments were in Europe. They said large European conglomerates were a way to play the growth in emerging markets. What’s more, because of the fears about Europe they are trading at a discount to U.S. multi-nationals. Russo likes Nestle (NSRGF). Cooperman’s top picks included AIG (AIG), Qualcom (QCOM), and Crocs (CROX). He said Facebook’s (FB) moblie revenues are much stronger than people think.
One company getting more interest from value investors than in the past is Apple (AAPL). The company’s shares are down 23% in the past six months. Famed value investor Bill Miller of Legg Mason, who was hanging out in the crowded lobby bar of the Hilton, said Apple was the best investment in the market right now. He said he has recently been buying shares for his fund. Miller says Apple’s shares trade at half the valuation of the proposed Dell deal, and it is still growing.
Hedge fund manager Whitney Tilson, who was holding a cocktail reception in a conference room at the hotel, says he has been buying Apple shares for a while. He thinks the stock can go to $550. Both Tilson and Miller like the recently announced deal to borrow money and pay out more dividends to shareholders.
“I think it is half right,” Tilson said. “It’s enough, along with a little innovation, to make the stock go up for now. But they need a better capital plan and more innovation for me to be a long-term shareholder.”