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 as it hits fresh heights? Let's take a close look at the fundamental and technical performance of the ultimate Warren Buffett stock.
XBerkshire 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 stocks. It's taken large positions in established giants like Apple (AAPL), as well as younger companies like Brazilian fintech Nu (NU) and young software firm Snowflake (SNOW). Berkshire has also snapped up a stake in Amazon.com (AMZN).
Legendary Investor Charlie Munger Dies
It emerged Nov.28 that key Berkshire executive Charlie Munger had died at the age of 99. The firm said in a missive that he had died "peacefully" at a California hospital.
"Berkshire Hathaway could not have been built to its present status without Charlie's inspiration, wisdom and participation," company CEO Warren Buffett said in a news release.
Munger had been key in moving Buffett away from a pure value investing approach into buying high quality firms at "fair" prices.
It was he who persuaded Buffett to stump up the cash to purchase See's Candies in 1971, for what Buffett later dubbed a "fancy price." Munger's belief that buying a very good business would pay off in the long run due to its ability to generate superior profits turned out to be true, making billions for Berkshire Hathaway.
The Oracle of Omaha later said the success of the investment led to him abandoning his approach of finding "mediocre companies at 'bargain' prices."
Berkshire Hathaway Tweaks Portfolio, Sells Apple Stock
Once again, Buffet's Berkshire Hathaway was a net seller of stocks in Q4 of 2023, the most recently reported period.
Berkshire Hathaway exited positions in Brazilian fintech StoneCo (STNE) and homebuilder D.R. Horton (DHI). It also liquidated positions in Globe Life (GL) and Markel (MKL).
Perhaps most notably, the firm sold some of its mammoth holdings of Apple stock. But even after selling just over 10 million shares, it still holds nearly 906 million within its portfolio. It also trimmed positions in Paramount Global (PARA) and HP (HPQ).
The firm held steady on some of its biggest and oldest holdings, including, Bank of America (BAC) and Coca-Cola.
Berkshire did not add any new positions but added shares in some firms. It bought more Chevron (CVX) and Sirius XM (SIRI).
Warren Buffett Buys More OXY Stock
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 stake in Occidental Petroleum (OXY).
Berkshire previously received regulatory approval to purchase up to 50% of the oil giant. And in the most recent quarter the firm added a further 19 million shares of OXY. In total, it now owns just over 248 million shares.
At the firm's annual shareholder meeting in May 2023, Buffett said Berkshire is "not going to buy control" of Occidental.
Buffett Bets Big On LNG
Warren Buffett now has even more energy exposure after it was reported on July 10 that Berkshire agreed to a $3.3 billion deal to buy Dominion Energy's (D) share of the Maryland-based Cove Point LNG export plant.
This will bring Berkshire Hathaway Energy's share in the LNG export facility to 75%. Brookfield Asset Management (BAM) owns the other 25%.
"We are proud of our operations at Cove Point and are excited for this opportunity to increase our ownership in these world-class facilities," Berkshire Hathaway Energy Gas Transmission and Storage President Paul Ruppert said in a statement.
Morgan Stanley analyst David Arcaro wrote in a note to clients that the deal was around $1 billion less than the firm expected. Dominion Energy will use the $3 billion from the deal to pay off debt.
BRKB Stock Hits New High
Berkshire Hathaway stock is well extended after previously clearing a cup-with-handle ideal entry point of 363.19, according to MarketSmith analysis. The stock now sits at all-time high levels.
BRKB is clear of the the 21-day exponential moving average and the even shorter-term 10-day moving average. It previously found support at its 50-day moving average, an encouraging sign. The key benchmark had previously acted as an area of resistance during the base-building process.
The relative strength line is moving higher again but remains below the a 52-week high it reached in September. This gauges a stock's performance compared to the broader S&P 500. Its Relative Strength Rating of 84 means it has outperformed 84% 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. But it lagged in 2023 rising about 16% compared to the S&P 500's gain of 24%. So far this year it is up around 16%.
All-around performance is strong, but not quite ideal, for Berkshire Hathaway stock. This is reflected in its IBD Composite Rating of 93 out of 99.
Earnings have grown by an average 22% over the past three quarters. Investor's Business Daily recommends investors look for companies with average EPS growth of at least 25% over that time period.
Wall Street expects year-over-year earnings growth to slow for Berkshire Hathaway. Analysts are projecting annual earnings will rise 24% in 2023 and then slow to 3% growth in 2024.
Big Money has been a net buyer of BRKB stock of late, which is reflected in its Accumulation/Distribution Rating of B+. In total, 49% of its stock is held by funds, with a further 36% held by management.
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's third-quarter earnings per share rose 43% to $4.96 as revenue jumped 21% to $93.2 billion. Analysts had expected Berkshire earnings to rise vs. a year earlier to $4.74 a share.
Berkshire Hathaway also saw its third-quarter operating profit jump 41% to $10.8 billion.
Buffett says investors should focus on operating earnings, not net earnings, to get a truer reflection of the performance of the business. He stresses that stock gains and losses in any particular quarter are "usually meaningless." This fits in with Buffett's longer-term investment philosophy.
The firm once again reduced its equity holdings, selling a net $5 billion in Q3. This brought its total year-to-date equity sales to about $23 billion.
It is getting set to post its latest earnings report. The firm, as is its wont, will report on Saturday, Feb. 24. Investors worldwide will also be waiting to read Warren Buffett's annual letter to shareholders.
Warren Buffett Cash Mountain Hits Record Levels
Berkshire's cash pile rose to record levels in the most recent quarter. Berkshire Hathaway's cash came in at a gargantuan $157.24 billion, up from the previous quarter's $147.4 billion.
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 yet again slowed down the pace of repurchases of its own stock. Buffett bought just $1.1 billion of its stock in Q3 compared to $1.4 billion of Berkshire stock in Q2. In the first quarter, Berkshire repurchased $4.4 billion, up 57% from Q4 of last year and the most since Q1 2021.
Nevertheless, recent buying of Berkshire Hathaway stock contrasts with Buffett's larger number of deals during and after the Great Recession. But the firm may look to make more deals if a recession starts to make acquisition targets more alluring.
Analyst Rates Berkshire Stock
CFRA analyst Catherine Seifert rates BRKB stock as a buy with a 405 price target.
"We lift our 12-month target price by $10 to $405, valuing BRK.B shares at 20.2 [times] our '25 operating EPS estimate of $20.05 (upped today by $0.10) and 21.5 [times] our '24 EPS estimate of $18.85, vs. its 3-year average forward multiple of 22.6 [times]," she said in a Nov. 6 research note. "We lift our '23 EPS estimate by $0.11 to $17.87 after Q3 operating EPS of $4.96 vs. $3.48 (restated) topped our $4.85 EPS estimate, the $4.93 consensus view, on 21% higher operating revenues amid 14% higher insurance premiums, a 70% surge in interest and dividend income and a 3-fold increase in energy and utility revenues ..."
She also said that "strong top-line growth and improved margins will provide the (BRKB) shares with a catalyst."
Meanwhile, Seifert said in a Nov. 28 that Munger's passing "represents a significant loss to the Berkshire culture and to Warren Buffett, and could test (to a degree) transition plans Berkshire established several years ago, though we do not expect any significant issues to arise."
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 nearly 360 per share, BRKB stock may be considered relatively expensive, BRKA stock is the most expensive on the market. It currently trades near an astounding $537,000 per share.
Warren Buffett decided to introduce the BRKB shares to allow investors to purchase stock directly. Big demand for Berkshire Hathaway stock had previously 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, a Berkshire vice chairman since 2018, 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. It lagged again in 2023, after giving up some spring and summer gains.
Berkshire stock is now extended past its most recent buy point, which offered an opportunity to those who wanted to own some BRKB due to the company's diversified portfolio of businesses. But given the stock's extended status, it is better to wait for another base to form.
And while Wall Street sees EPS growth ahead for Berkshire in 2024, it remains well shy of the rates sought by many growth investors.
Bottom line: Berkshire Hathaway stock is worth adding to one's watchlist if you are keen to add the ultimate Warren Buffett stock to your portfolio. Nevertheless, investors looking for true market leaders should also check out IBD Stock Lists, including the IBD 50 list of top-performing stocks.
Please follow Michael Larkin on X, formerly known as Twitter, at @IBD_MLarkin for more analysis of growth stocks.
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