Warren Buffett is widely regarded as one of the greatest investors of all time. One way to share in his success is to invest in his firm, Berkshire Hathaway (BRKB). But is Berkshire a good buy for you now? Let’s take a close look at the fundamental and technical performance of the ultimate Warren Buffett stock.
Berkshire Hathaway is a conglomerate that owns some of America’s most famous firms. It wholly owns the likes of Geico, Duracell, Dairy Queen, Fruit of the Loom and railroad operator BNSF.
Berkshire Hathaway is perhaps more famous for serving as an investment vehicle for Warren Buffett and his top lieutenant, Charlie Munger. Following their value investing philosophy, the company owns huge stakes in American Express (AXP), Coca-Cola (KO) and other heavy hitters.
But the definition of a Warren Buffett stock has evolved in recent years. Under investment managers Todd Combs and Ted Weschler, Berkshire Hathaway has been increasingly sinking money into tech. It’s taken large positions in established giants like Apple (AAPL), as well as younger companies like Brazilian payments company StoneCo (STNE) and young software firm Snowflake (SNOW). Berkshire has also snapped up a stake in Amazon.com (AMZN).
Berkshire Hathaway Tweaks Portfolio, Sells TSM Stock
In Q4, Berkshire Hathaway sold a large part of its big stake in Taiwan Semiconductor (TSM), the world’s largest contract chipmaker. It is a big supplier to Apple (AAPL), his firm’s top holding. Berkshire sold 86% of its TSM stock after buying 60 million shares for more than $4.1 billion in the preceding quarter.
In contrast, Warren Buffett added to his position in building products maker Louisiana Pacific (LPX) by 21% by adding 1.249 million shares.
Buffett also increased his bet on the ongoing streaming wars by adding 2.420 million shares during the quarter in Paramount Global (PARA). Berkshire now has a now has a 15% stake in the company. The Paramount+ streaming service is a small but growing rival to Netflix, Disney+ and Amazon Prime.
According to its most recent 13F filing, Berkshire added slightly to the position of top holding Apple. An additional 333,856 shares brings its total holdings to 895.1 million.
The firm held steady on some of its biggest and oldest holdings, including Bank of America (BAC) and Coca-Cola (KO).
But Chevron (CVX), another big holding, was trimmed back by 2.38 million shares to 162.96 million.
Warren Buffett Buys OXY Stock
But Chevron is not the only way in which Berkshire has energy exposure.
In fact, the firm has been making waves as it builds an increasingly large share in Occidental Petroleum (OXY).
In early March, it emerged that Berkshire had snapped up 91.2 million shares in oil giant Occidental Petroleum. It comes as the price of oil has been spiking amid the Russia-Ukraine war.
Amid recent volatility, Berkshire bought another 5.99 million shares between Sept. 26 and 28, according to a Sept. 28 filing. The firm held steady on the stock during the most recent quarter, with its 278 million shares representing a 28% stake in the company. .
Berkshire Snaps Up Insurer
In late October, Berkshire Hathaway completed the acquisition of insurer Alleghany.
The firm stumped up $848.02 per share in cash, which equates to a total equity value of about $11.6 billion.
Alleghany, now a wholly-owned subsidiary of Berkshire Hathaway, continues to be led by CEO Joseph Brandon.
Berkshire announced it had received all regulatory approvals relating to the deal on Oct. 14, and it closed several days later.
The deal represented a multiple of 1.26 times Alleghany’s book value as of the end of December 2021. It was Berkshire’s biggest acquisition in six years.
Besides its main insurance business, Alleghany also owns a steel company and a funeral services firm
BRKB Stock Technical Analysis
Berkshire Hathaway stock is forming a cup-with-handle base with a buy point of 321.42, according to MarketSmith analysis.
Shares are seeking support just below the 50-day moving average. They are also clear of the 200-day line.
The relative strength line is trying to firm up after slipping from a 52-week high. This gauges a stock’s performance compared to the broader S&P 500. Its Relative Strength Rating of 56 means it has outperformed 56% of stocks in terms of price performance over the past 12 months.
Berkshire Hathaway stock held strong in 2022 making a slight gain compared to a loss of more than 19% for the S&P 500. So far in 2023 BRKB is positive, though only fractionally.
All-around performance is not ideal. This is reflected in its IBD Composite Rating of 73 out of 99.
Earnings at the firm are improving. EPS grew by an average of 23.6% over the past three quarters. Investor’s Business Daily recommends investors look for companies with average EPS growth of at least 25% over this time period.
Wall Street expects earnings growth to slow for Berkshire Hathaway going forward. Analysts are projecting annual earnings will rise 20% in 2022, with growth slowing in 2023 to 6%.
Big Money has been holding steady on BRKB stock of late, which is reflected in its Accumulation/Distribution Rating of C.
Warren Buffett Recommendation
Berkshire stock has struggled to outperform the S&P 500 index in recent years despite its outperformance in 2022.
Before that, BRKB stock at best moved with the market for a decade. An investor could have bought an index fund or ETF like the SPDR S&P 500 ETF (SPY), and generated similar or higher returns with less stock-specific risk.
“In my view, for most people, the best thing to do is owning the S&P 500 index fund, Buffett himself previously said at a Berkshire annual meeting. “If you bet on America and sustain that position for decades, you’d do far better than buying Treasury securities, or far better than following people. Perhaps with a bias, I don’t believe anyone knows what the market is going to do tomorrow, next week, next month, next year.”
Berkshire Hathaway Earnings
Berkshire Hathaway earnings per share jumped 23% in the most recent quarter to $3.53 a share. This was better than Wall Street expectations.
Operating earnings, which is made up of profits made from its businesses, came to $7.76 billion. This was up 20% on the previous year.
But the firm also suffered a loss of $10.1 billion on its investments during the quarter amid broader stock market volatility.
However the firm stresses that stock gains and losses in any particular quarter are “usually meaningless.” This fits in with Buffett’s longer-term investment philosophy.
Berkshire Hathaway has yet to announce the date of its forthcoming earnings report, though it took place in late February last year.
Buffett’s Cash Mountain Grows
Berkshire’s cash pile rose again in the most recent quarter. Berkshire Hathaway cash came in at $109 billion at the end September, up from $105.4 billion the previous quarter.
Having such a large supply of cash protects the Warren Buffett stock during tough times. It also means Berkshire Hathaway is able to deploy capital when desirable businesses become available for purchase.
The firm spent approximately $1.05 billion in share repurchases in Q3. It has now spent $5.3 billion so far in 2022.
The more aggressive buying of Berkshire’s own shares of late contrasts with Buffett’s deals during and after the Great Recession. But the firm may look to make more deals if a recession starts to make attractive acquisition targets more alluring.
Analyst Mixed On Berkshire Stock
CFRA analyst Catherine Seifert is rating BRKB stock as a hold with a 325 price target.
“Berkshire’s premium valuation – versus the broader market and the company’s historical averages – is dependent upon its ability to produce revenue growth and operating profit margins that are superior to broader averages,” she said in a Jan. 21 research note. ” Berkshire’s financial results in 2021 improved from weakness in 2019 and 2020, but not at a rate that would support the shares’ premium valuation, and first half 2022 results were mixed.”
She also expects the firm to deploy its massive cash pile going forward.
“We expect some near-term weakness at GEICO to be offset by an acceleration in growth at Berkshire’s reinsurance units,” she said. “We see acquisitions and/or share buybacks remaining part of Berkshire’s capital allocation strategy, given the $105.4 billion in cash and short-term investments on hand as at June 30, 2022.”
Difference Between BRKA Stock And BRKB Stock
The most obvious difference between Berkshire Hathaway’s A class and B class shares is the price. While at just under 300 per share, BRKB stock may be considered relatively expensive, BRKA stock is the most expensive on the market, currently trading around $424,500 per share.
Warren Buffett decided to introduce the BRKB shares to allow investors to purchase stock directly. Big demand for Berkshire Hathaway stock forced less-moneyed players to plow cash into unit trusts or mutual funds that mirrored his company’s holdings.
Berkshire Hathaway Today
Berkshire Hathaway operates in four main sectors.
Its insurance group is one of its biggest cash cows. One of the most famous jewels in the crown is Geico. Other parts of this business include multinational property/casualty and life/health reinsurance company General Re and Berkshire Hathaway Reinsurance Group. The latter underwrites excess-of-loss reinsurance and quota-share coverage globally.
Insurance operations are a big reason why Berkshire Hathaway earnings can be lumpy.
Its Regulated Utility Business group includes Berkshire Hathaway Energy, formerly known as MidAmerican Energy. It also includes railway services arm BNSF, North America’s largest freight railroad network.
Meanwhile, the Manufacturing, Service & Retailing group includes Acme Building Brands, Fruit of the Loom and Justin Brands. The likes of Buffalo News, Business Wire, Dairy Queen and NetJets fall under the service subsector. Retailers include See’s Candies, Ben Bridge Jeweler, Helzberg Diamond Shops and Star Furniture.
Finally, the Finance & Financial Products segment includes: Hathaway Credit Corporation, transportation equipment and furniture leasing specialists XTRA and CORT, and BH Finance whose main interest is in proprietary investing strategies.
Warren Buffett Names Successor
One of the biggest questions around the future of Berkshire Hathaway in recent years was who would take over the mantle of CEO from Buffett.
The Oracle of Omaha has finally given the answer. He said Greg Abel, who runs the noninsurance businesses, will take over in his stead.
Abel, has been a Berkshire vice chairman since 2018, and had long been viewed by analysts as a possible successor. The Canadian is chairman and CEO of Berkshire Hathaway Energy. He has also been vice chairman of Berkshire’s noninsurance operations since January 2018.
The firm has not disclosed the precise timing of Berkshire’s leadership turnover.
Is Berkshire Hathaway Stock A Buy Now?
Berkshire Hathaway stock generally lagged the S&P 500 index since late 2017 but managed to handily outperform the benchmark index in 2022. So far in 2023 it has struggled to make gains.
Berkshire stock sits near a buy point. Those keen on the stock could consider adding it to their watchlist for now.
While Wall Street sees solid EPS growth ahead for Berkshire for 2022 and in 2023, it still remains shy of the rates sought by CAN SLIM investors.
Bottom line: Berkshire Hathaway stock is worth watching closely by those keen to add the ultimate Warren Buffett to their portfolio. It is a candidate to add to one’s watchlist as it stalks a new entry point. Investors looking for true market leaders should also check out IBD Stock Lists, including the IBD 50 list of top-performing stocks.
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