Berkshire Hathaway Stock: Buy, Hold, Or Sell?

Seeking Alpha2021-10-13

Summary Berkshire is buying back a lot of stock, which may indicate that it's currently undervalued. We expect most of its top holdings to continue to deliver strong results in the foreseeable future...

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精彩评论

miaomee
2021-10-13
miaomee
Pls like n comment
- Venus_M:
  [开心]
cweida
2021-10-13
cweida
Buy on the dip!
- ClickLike:
  buy buy
Andersonkana
2021-10-13
Andersonkana
Good

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We discuss those and give our final take on the company.\n\nPaul Morigi/Getty Images Entertainment\nBerkshire Hathaway (BRK.B)(BRK.A) has benefited greatly since the pandemic started as their underlying positions have performed quite well and continue to do so. Since the stock market lows in March 2020, shares of BRK.B have gained more than 50%, however, they have lagged the S&P 500 (SPY) over the same period.\nThe company is sitting on a boatload of cash, which they have used for stock buybacks of late. This can tell an investor that the best investment they could make right now is buying BRK.B shares due to valuation. In other words, stock buybacks can often be associated with an undervalued or at least fairly-valued stock.\nSitting On Loads of Cash\nAs of the company's most recent quarter, Berkshire Hathaway had $140 billion in cash to be deployed. Over the years, the company has not been particularly active with the usage of cash, but more recently, they have utilized the cash to buy back their own stock.\nThrough the first half of 2020, CEO Warren Buffett and the company repurchased $6.7 billion of their own stock. Fast forward to the first half of this year and the company has repurchased $12.6 billion in stock, nearly double of the previous year.\nStock buybacks are one way companies return value to shareholders, especially considering shares of Berkshire do not pay a dividend, as Warren Buffett has long preferred to reinvest back into the business.\nHere's a look at the company’s most recently reported balance sheet to see the massive amount of cash they have on hand.\nSource: Company 10-Q\nStrong Portfolio Performance\nOwning shares of Berkshire Hathaway is similar to owning an ETF, or Exchange Traded Fund. The company owns a diversified portfolio of strong businesses in numerous different sectors of the market.\nAs it's widely known, Apple (AAPL) is the company's largest holding within its portfolio, accounting for more than 40% of the total equity portfolio. Warren Buffet & Co made their first investment in Apple back in May 2016, buying a modest stake of $1 billion into the technology giant, after years of shying away from the sector for the most part.\nFast forward to today, Berkshire's stake in Apple is now worth an astounding $130-plus billion. The stake has risen over the years as Berkshire has made more purchases and shares of Apple have climbed. In fact, since making their first purchase of Apple, shares of the technology giant have risen roughly 475%. Shares of Apple are up 10% YTD and more than 30% in the past 12 months.\nApple is not only a business leader when it comes to market cap, but the company has the strongest brand across the globe. Apple is a great innovative company, even with all the naysayers every year complaining about their products not being innovative enough, that has an array of strong products that continue to get better and they tie all their users into their Apple ecosystem, which will further feed the company moving forward.\nBesides being a strong business that has produced superb results for investors over the years, the company also pays a growing dividend. Since Apple reinstated its dividend in 2012, it has grown the dividend by more than 130%. Berkshire Hathaway is projected to earn close to $800 million in dividends from Apple alone this year.\nOther companies that make up Berkshire Hathaway's top 10 equity holdings include\n● Bank of America(NYSE:BAC)\n● American Express (AXP)\n● Coca-Cola (KO)\n● Kraft Heinz (KHC)\n● Moody's Corp (MCO)\n● Verizon (VZ)\n● U.S. Bancorp (USB)\n● DaVita (DVA)\n● Charter Communications (CHTR)\nBank of America holds the top spot in the portfolio in terms of shares owned by Berkshire. BRK owns more than 1.0 billion shares of BAC, and the company accounts for 14% of the total equity portfolio, which means Apple and Bank of America combine to make up more than 50% of the BRK equity portfolio.\nBank of America also has had a strong year thus far, with shares of BAC up over 30% YTD and up 55% over the past 12 months. BAC pays a 2% dividend yield, and Berkshire collects $840+ billion of dividend income in 2021, based on projections at the start of the year.\nCEO Warren Buffett has long held a special place in his heart for US banks with Bank of America being one of his favorites. For years, Wells Fargo (WFC) and Bank of America were his two bank darlings, but with Wells Fargo having their much-publicized issues the past few years, Berkshire has sold out of the position that was held for years.\nBank of America has improved its digital presence over the years as many consumers have turned to mobile transactions, especially with the uptick in e-commerce transactions and competition from technology companies like PayPal (PYPL).\nInterest rates have been held at very low levels for a number of years and BAC is one of the most interest-rate-sensitive banks out there, as such, the company is bound to benefit when the Fed decides to start increasing rates in the near future.\nHere's a look at how Berkshire's top 5 stocks have performed over the past year:\nSource: yCharts\nBerkshire Hathaway also owns a number of private businesses as well, with notable ownership of companies such as GEICO within the insurance space and HomeServices within the Real Estate sector. As you can imagine, the insurance industry is coming off a rough 2020, but its equity investments have more than held their own for the Berkshire portfolio as a whole, leading the company forward.\nHere's a look at the company’s revenues through the first half of the year and the most recent quarter.\nSource: BRK.B 10-Q\nDuring the company's most recent quarter, Berkshire Hathaway reported revenues of $69.1 billion, which was an increase of 21.5% year over year. Through the first half of the year, revenues are up 13.2%.\nBerkshire Itself Is Not Very Buffett-Like\nIf you have ever listened to Warren Buffett or Charlie Munger speak about their investment strategy, you would know that they are more considered value investors looking to buy high-quality businesses at quality prices.\nIn fact, here's one of Warren Buffett's many quotes:\n\n “It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.\"\n\nSo first and foremost, buy high-quality businesses. Looking to “buy the dips” is something that has been hard to come by as we have not seen many since early 2020.\nAnother common theme amongst many companies within the Berkshire Hathaway portfolio is that many of them pay dividends. In fact, more than half of the company's 40-plus holdings pay a dividend. At the start of 2021, the company was projected to receive $2.2 billion in dividend income during 2021.\nWith all that being said, it's interesting to see that Berkshire shares itself do not pay a dividend. Warren Buffett has made a killing over the years investing in companies with a growing dividend and utilizing the power of compounding.\nCompounding is often an overlooked component of how Warren Buffett and Berkshire Hathaway built wealth over so many years. Compounding dividends is the idea of reinvesting dividends received back into equities. Doing this combined with a growing dividend each year creates a compounding effect that essentially builds wealth with dividend income.\nThis is evident given the fact that Warren Buffett, who has amassed a net worth of more than $100 billion, has accumulated most of his wealth after his 50th birthday.\nIn the image below, you can see how the power of compounding picks up speed down the road. This image is showing an example of investing $500/mo from age 25 earning an 8% average annual return.\n\nNow have a look at how this has worked out for Warren Buffett through 2019.\n\nThe Changing of the Guard\nSince 1965, Warren Buffett has been the CEO of Berkshire Hathaway. The Oracle of Omaha recently turned 91, thus he would be turning over the reigns to a new leader in the near future. During the company's annual shareholder's meeting this year, Charlie Munger inadvertently let slip who would be taking those reigns.\nDuring the meeting, Mr. Munger was discussing the company culture and then went on to say \"Greg will keep the culture,\" which sent listeners into a frenzy about a question that has gone unanswered for years. Who he was referring to was Vice Chairman Greg Abel, who runs all of the non-insurance operations.\n\nGreg Abel is not someone new to the Berkshire Hathaway ways, as Mr. Abel has been with the company for more than 20 years. Mr. Abel has had an inside look into how Warren Buffett conducts business that many others have never seen.\nDue to his experience at Berkshire and with Warren and Charlie over the years, Greg Abel is more than ready to take the reigns making him a perfect successor.\nBerkshire Expectations Moving Forward\nThe unique thing about Berkshire Hathaway is how much they are tied to the equity markets. As I mentioned at the beginning, investing in a stock like Berkshire Hathaway is like investing in an Exchange Traded Fund, or ETF, due to the number of different equity investments the company owns.\nDue to the makeup of Berkshire, utilizing the popular P/E ratio is not something I look at much when valuing shares of BRK.B. For what it is worth, shares of Berkshire Hathaway currently have a P/E ratio of 21.8x.\nBook value is one metric you could use when valuing shares of Berkshire. The reason the P/E ratio is tough to use is due to the fact earnings have a big part, but net earnings do not take into account equity gains.\nShares of BRK.B currently trade at a Price to Book Value of 1.3x. Over the past five years, BRK.B has traded at a five-year average Price to Book Value of 1.4x, indicating shares are fairly valued based on the current stock price.\nBerkshire also could be valued based on the broader market, which has been reaching overinflated territory for some time. The S&P 500 currently trades with a P/E ratio of 34x, which is well above the average 15x it has traded around over decades. Stocks have run and interest rates have remained low, but the Fed may begin changing its policy in the near future.\nInvestor Takeaway\nBerkshire Hathaway is and has been a great investment for many portfolios due to the diversification the investment offers. The company is led by one of the greatest investors of all time and the company has a great succession plan in place with Greg Abel set to take over in the near future.\nApple and Bank of America make up the majority of the company's equity portfolio, but the company also owns many private companies, GEICO being one of the most well-known.\nIn terms of valuation, shares of BRK.B appear to be fairly valued and with the broader market trading at high valuations and the Fed appearing to change its monetary policy soon, Berkshire returns are expected to mirror the S&P 500 in my view.\nOverall, Berkshire Hathaway has proven to be a sound investment over the years. The company is constantly looking for good deals in high-quality companies. In addition, when it comes to management, it does not get much better than Warren Buffett. He has been an exceptional leader and investor, and now is gearing up to hand the reigns over to Greg Abel who is more than able and ready to continue the next generation of Berkshire when the time comes.","kind":null,"is_publish_news":true,"is_publish_highlight":true,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":822219621,"gmtCreate":1634134020798,"gmtModify":1634134020947,"author":{"id":"3569375896365334","authorId":"3569375896365334","name":"miaomee","avatar":"https://static.tigerbbs.com/fd309d5a46384576888494b61b0e5953","vip":1,"crmLevel":2,"crmLevelSwitch":0},"htmlText":"Pls like n comment&nbsp;","listText":"Pls like n comment&nbsp;","text":"Pls like n comment","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":1,"repostSize":0,"link":"https://laohu8.com/post/822219621","repostId":1124636096,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":6222776,"gmtCreate":1634397304921,"gmtModify":1634397304921,"authorId":3566385558470298,"author":{"id":3566385558470298,"authorId":3566385558470298,"name":"Venus_M","avatar":"https://static.tigerbbs.com/525433622d774840840ddaacaf2281d2","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":822219621,"type":1,"supId":0,"prevId":0,"content":"[开心]","text":"[开心]","html":"[开心]"}],"langContent":"CN"},{"id":822647430,"gmtCreate":1634131618246,"gmtModify":1634131618364,"author":{"id":"3575329601771279","authorId":"3575329601771279","name":"cweida","avatar":"https://static.tigerbbs.com/b4cca1fdd58d7739662f062d01a402cf","vip":1,"crmLevel":5,"crmLevelSwitch":0},"htmlText":"Buy on the dip!","listText":"Buy on the dip!","text":"Buy on the dip!","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":1,"repostSize":0,"link":"https://laohu8.com/post/822647430","repostId":1124636096,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":6185555,"gmtCreate":1634132006656,"gmtModify":1634636806953,"authorId":3559187781517417,"author":{"id":3559187781517417,"authorId":3559187781517417,"name":"ClickLike","avatar":"https://static.tigerbbs.com/31a83d87dc5a6faa4338cc140451880b","vip":1,"crmLevel":7,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":822647430,"type":1,"supId":0,"prevId":0,"content":"buy buy","text":"buy buy","html":"buy buy"}],"langContent":"CN"},{"id":822646352,"gmtCreate":1634131078400,"gmtModify":1634131078539,"author":{"id":"4088599389256890","authorId":"4088599389256890","name":"Andersonkana","avatar":"https://static.tigerbbs.com/21e08c99709245ba5acdcf7245d9c40f","vip":1,"crmLevel":1,"crmLevelSwitch":0},"htmlText":"Good","listText":"Good","text":"Good","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/822646352","repostId":1124636096,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":31,"commentSize":3,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":false,"deviceId":"web-server-community-laohu8-v3","version":"4.25.1","shortVersion":"4.25.1","platform":"web","vendor":"web","appName":"laohu8","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/1124636096"}