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updated 7/8/2010 4:28:12 PM ET 2010-07-08T20:28:12

An analyst advised investors Thursday to sell shares of Warren Buffett's Berkshire Hathaway Inc. because the economy may weaken over the rest of the year and hurt demand for its businesses that rely on consumer spending.

Stifel Nicolaus analyst Meyer Shields said in a research note that declining consumer confidence will likely slow consumer spending. Oil prices could also rise and further reduce consumer spending.

Berkshire's insurance businesses, like Geico and General Re, generated more than half the company's $8.1 billion profit last year, but its clothing, furniture, jewelry, railroad and building materials businesses are sensitive to the health of the economy.

Shields also said Berkshire may be hurt more than other companies in an economic downturn because of its derivative contracts and investments. Some of Berkshire's derivatives are tied to the value of several stock market indexes, so their value would fall if those stock markets falter.

Berkshire's Class B shares slipped 50 cents to $79.42 in late afternoon trading Thursday.

Berkshire officials don't typically comment on analyst reports, and the Omaha company hasn't provided earnings guidance in decades. Buffett didn't immediately respond to a message Thursday.

In the past, the estimated value of Berkshire's derivative contracts have weighed down the company's earnings even though they don't mature until more than a decade from now.

Berkshire recorded a largely unrealized net loss of $4.6 billion on its investments and derivatives in 2008, but as stock markets improved last year, Berkshire's derivatives helped the company record a $486 million net gain on derivatives and investments in 2009.

Buffett has said he believes Berkshire's derivatives will ultimately prove profitable over their lifetimes, and he has encouraged investors to ignore the wild swings in their estimated value from quarter to quarter.

Morningstar analyst Bill Bergman said even though Berkshire is economically sensitive, it owns a number of strong businesses that could gain market share in lean times.

"It's times like these that you buy into the tough companies that may be economically sensitive," Bergman said. Morningstar doesn't currently recommend buying Berkshire, however.

In the first quarter of this year, Berkshire's manufacturing and retail businesses improved significantly and contributed $477 million to the company's net income of $3.6 billion. Buffett said in May that the improvement at manufacturing businesses like the Iscar tool makers, apparel companies like Fruit of the Loom, and luxury good sellers like Forest River RVs and Berkshire's jewelry businesses showed the economy was improving.

But Berkshire owns a number of businesses tied to housing, such as Shaw carpet, Acme brick and Benjamin Moore paint, that hadn't improved much by the end of the first quarter. Berkshire's second-quarter report is likely to be released on Aug. 6.

And Berkshire's recent acquisition of the Burlington Northern Santa Fe railroad only increases its economic sensitivity because companies ship fewer cars, chemicals, crops, lumber and containers of imported goods when the economy is slow.

Berkshire owns roughly 80 businesses and it has big investments in companies including Coca-Cola Co. and Wells Fargo & Co.

Related links: Berkshire Hathaway Inc.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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