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
Warren Buffett is also a player in the streaming wars, after increasing his position in Paramount Global (PARA) by 13%. The Paramount+ streaming service is a small but growing rival to Netflix, Disney+ and Amazon Prime.
According to a 13F filing in August, Buffett also added to top holding Apple (AAPL) as well as Chevron (CVX) in Q2. These account for two of the three most valuable holdings in the firm’s portfolio. Bank of America (BAC) is its second-most valuable holding
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 amidst 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. It now holds a 20.9% stake in the oil and gas producer, up from 20% as of Aug. 30.
BRKB Stock Technical Analysis
BRKB has skidded below its 50-day moving average, a bearish sign. An attempt to retake the key technical benchmark has failed for now.
It is even further shy of the longer-term 200-day line. Berkshire stock currently sits less than 10% below this level.
The relative strength line has been choppy after a strong start to 2022. The line a stock’s performance compared to the broader S&P 500. Its Relative Strength Rating of 67 means it has outperformed 67% of stocks in terms of price performance over the past 12 months.
BRKB stock has fallen by just over 9% since the start of 2022. This is better than the S&P 500’s decline of nearly 24% over that period however.
All-around performance is not ideal. This is reflected in its IBD Composite Rating of 64 out of 99.
Earnings at the firm are improving. EPS grew by an average of 33% over the past three quarters. The CAN SLIM system 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 13% in 2022, with growth slowing a bit in 2023, up 12%.
Big Money has a largely been holding steady on BRKB stock of late, which is reflected in its Accumulation/Distribution Rating of C-.
Warren Buffett Recommendation
Berkshire stock has been lagging the S&P 500 index since late 2017, despite its outperformance so far 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.”
BRKB stock has been outperforming the S&P 500 so far this year. With the firm being famed for its careful financial stewardship, it could now finally be set for a decent period of outperformance.
Berkshire Hathaway Earnings
Berkshire Hathaway second-quarter earnings per share jumped 44% in the most recent quarter to $4.21 a share. This was better than Wall Street expectations.
Operating earnings, which is made up of profits made from its businesses, came to $9.28 billion.
But the firm also suffered a loss of $53 billion on its investments during the quarter amid broader stock market turmoil.
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.
Buffett’s Cash Mountain Still Mighty
Berkshire’s cash pile has fallen from recent highs, but remains elevated. Berkshire Hathaway cash slipped slightly to $105.4 billion at the end of June.
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 billion in share repurchases during Q2. It has now spent $4.2 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 Sept. 17 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 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,” she said.
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 gave 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 has been lagging the S&P 500 index since late 2017. But it has handily outperformed the benchmark index so far in 2022.
Berkshire stock has yet to carve out a new buy point. In addition, the market is currently in the midst of a correction, which makes buying new stocks unwise.
While Wall Street sees solid EPS growth ahead for Berkshire for the rest of 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 until a new entry emerges. 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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