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). Berkshire Hathaway is near a buy zone, but is it a good buy for you? Let’s take a close look at the fundamental and technical performance of the ultimate Warren Buffett stock.
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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, Berkshire Hathaway 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. Warren Buffett became a big investor in airlines such as Delta Air Lines (DAL). But he was left to rue his decision to go against his own long-held views about that industry’s lack of profitability. The move blew up in his face as airline stocks were decimated due to the global coronavirus pandemic.
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 new software IPO Snowflake (SNOW). Berkshire also snapped up a stake in Amazon.com (AMZN).
Warren Buffett Backs Berkshire
Warren Buffett spent a record amount buying back Berkshire Hathaway stock in the most recent quarter. The firm’s results showed the company reported share buybacks of about $9 billion, a total that exceeds any full-year amount in Berkshire’s history. Analysts were expecting just $3.2 billion.
The Q3 repurchases were also a big jump from the $5.1 billion in Q2. At the time, that was more than double the prior quarterly record of $2.2 billion in Q4 2019 and a shift from slower stock repurchases of $1.7 billion in Q1.
Berkshire loosened rules for Buffett to buy back shares in 2018. With Berkshire steadfastly cautious on M&A in recent years, investors have been clamoring for more repurchases.
But as recently as May, Buffett argued repurchases weren’t more attractive than other money moves, saying the stock price had not fallen to “where it really feels way better to us than other things, including the option value of money, to step up in a big, big way.”
Berkshire Hathaway Tweaks Portfolio
Berkshire Hathaway trimmed its position in Apple stock, which it opened in Q1 2016. It also kept keeping a smaller stake in Amazon steady.
The firm also took significant new positions in pharma giants Pfizer (PFE), AbbVie (ABBV), Merck (MRK) and Bristol-Myers Squibb (BMY) in Q3.
Buffett has been rotating the firm’s portfolio of late, adjusting to the current market conditions despite his reputation as a buy-and-hold investor. In the third quarter Berkshire was a net buyer of other stocks, adding $4.8 billion to its closely watched portfolio.
ICOST) after dumpingDAL) and all of its airlines stocks the prior quarter because of the coronavirus hit to global air travel.
Berkshire also slashed positions in JPMorgan Chase (JPM) by 95%, Wells Fargo (WFC) by 46%, and in GOLD).
Warren Buffett Admires Snowflake
While he is known for advocating investing in proven stocks with long-term value, Buffett does not always follow his own advice. For example, he recently took the unusual step of participating in the initial public offering of Snowflake.
Snowflake is a cloud-based data-warehousing company. It has raised roughly $1.4 billion in venture capital funding, which includes $479 million raised in February. Berkshire snapped up $250 million of class A common stock in a private placement. In addition, Berkshire bought an additional $320 million worth of shares from an unnamed stakeholder in a secondary transaction. That brings Berkshire’s total investment to $570 million.
The bet appears to be paying off. Though it is off highs, the stock is up more than 130% on its initial public offering price of 120 following its Sept. 16 debut.
Buffett Funds Media Deal
Berkshire Hathaway is a key backer in a deal disclosed Sept. 24 that will see TV station owner E.W. Scripps (SSP) purchase privately held cable network ION Media for $2.65 billion. The latter firm’s flagship, ION Television, is a top 5-ranked U.S. general entertainment network.
Warren Buffett’s firm is snapping up $600 million of Scripps preferred shares to help fund the deal. Scripps stock surged on on the news.
Berkshire will also receive a warrant that allows it to snap up up to 23.1 million more shares at a price of $13. This adds up to an additional investment of $300 million. Scripps’ common shares, however, currently trade below 11 each.
Berkshire Hathaway Coronavirus Exposure
As well as its status as an investment vehicle, Berkshire Hathaway is a conglomerate in its own right. It has interests in segments such as railroads, utilities and energy. Those sectors, along with other “real economy” companies that are Warren Buffett staples, have been hard hit by the coronavirus shutdowns and massive economic contraction.
Berkshire owns Geico, the No. 2 U.S. auto insurer after State Farm. Currently, states such as California are ordering insurers to give partial credits or refunds of premiums in lines such as private passenger automobile insurance.
Railroads Not Immune
Berkshire also owns BNSF Railway Company, the largest freight railroad network in North America. Rail operators such as Union Pacific (UNP) and CSX (CSX) have seen business suffer during the pandemic. But rail operators and other transportation companies are seeing business pick up again.
Other wholly owned businesses such as Dairy Queen and multilevel marketing company Pampered Chef also struggled during coronavirus restrictions, though those are easing.
Warren Buffett’s Big Gas Bill
Warren Buffett has been criticized for the size of his cash pile. But on July 6, he made his biggest acquisition in years with a $10 billion deal for Dominion Energy‘s (D) assets.
Berkshire seized the chance to secure Dominion’s gas pipeline network after the utility giant and Duke Energy (DUK) unexpectedly aborted plans to build the Atlantic Coast Pipeline.
Berkshire Hathaway Energy will buy about 7,700 miles of natural gas transmission pipelines and 900 billion cubic feet of gas storage. The all-cash deal includes $4 billion of equity and $5.7 billion of debt. It’s set to close in the fourth quarter.
“We are very proud to be adding such a great portfolio of natural gas assets to our already strong energy business,” Buffett said in a statement.
Berkshire Hathaway Stock Technical Analysis
Amid the coronavirus-related stock market pullback, Berkshire Hathaway stock plummeted. MarketSmith analysis shows it has recovered from its woes, and has just broken out of a new flat base. However it has fallen back below its ideal buy point of 235.09.
The flat base is one of the few reliable patterns that quality stocks form before they make substantial price advances. Further bolstering the new base’s case is the fact it is a first stage pattern. IBD research shows early stage bases have a higher chance of success.
BRKB stock has also pulled clear of its 50-day moving average. It had managed to retake this key technical benchmark after finding support at its 200-day line amid recent stock market pressure.
The relative strength line of Berkshire Hathaway stock is giving mixed signals at best. While it rallied after a recent decline, it has been moving sideways since the start of 2021. The RS line previously made some headway from mid-October after declining since mid-September. However it is yet to make up its most recent losses.
It had been trying to recover after plunging to its worst level since late 2007, and it remains well down on where it started 2020.
The RS line, the blue line in the charts provided, tracks a stock’s performance vs. the S&P 500 index and reflects Berkshire’s underperformance.
Warren Buffett Recommends This
Berkshire stock has lagged the S&P 500 index since the end of 2018. 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 said at Berkshire’s 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,” he said at Berkshire’s annual meeting. “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 Mixed
Berkshire Hathaway earnings in Q3 were a mixed bag as its diverse array of businesses — from railroad BNSF to insurer Geico — suffered varied impacts from the coronavirus.
The company’s operating earnings came in at $5.478 billion, down more than 30% from the same quarter last year.
Earnings from the vaunted stock portfolio were up more 82% to $30.137 billion. This is thanks to holdings such as Apple and Amazon going on strong runs. Coca-Cola, another key holding, rose 10.5% over that period.
Berkshire Hathaway earnings per share slipped 30% on the previous year, coming in at $2.30.
Buffett’s Cash Mountain Still Mighty
With the surge in buybacks and other stock purchases, Berkshire’s cash pile dipped to $145.7 billion from a record high of $146.6 billion in Q2. However it is still larger than the $137 billion in the previous quarter.
The Warren Buffett stock has been struggling of late, which is why its IBD Composite Rating has slipped to 37. This puts it in the bottom 37% of stocks tracked. The Stock Checkup Tool shows a good but not stellar Berkshire earnings-per-share growth rate of 20% over the past three years.
Meanwhile, its earnings also can be lumpy. Wall Street is not overly optimistic for Berkshire Hathaway earnings growth. Analysts project its earnings will fall 6% overall in fiscal 2020, before rebounding with a 17% rise in 2021.
Earnings ultimately drive stock performance. The CAN SLIM system recommends investors look for companies with earnings and revenue growth of at least 25%.
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 over 200 a share — BRKB stock may be considered relatively expensive, BRKA stock is the most expensive on the market, currently trading near $350,000 a 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.
Berkshire Hathaway Stock Is Not A Buy
Berkshire Hathaway stock has been lagging the S&P 500 index since late 2018 and during the coronavirus market rally. While it is near a new buy zone, overall performance is still lagging.
In 2020, BRKB stock’s gains lagged the broader S&P 500. Its poor Composite Rating underlines the fact its performance is not ideal.
After a late-2018 burst, Berkshire Hathaway earnings growth has been modest and uneven. Wall Street sees mixed fortunes for Berkshire earnings for the years 2020 and 2021.
While it may be presumptuous to bet against Warren Buffett, a canny investor looking for stocks to buy should focus on faster-growing companies, or even a broad-market ETF. The latter is an option espoused by Buffett himself, who says owning an asset such as the SPDR S&P 500 (SPY) is an ideal investment vehicle.
Bottom line: Berkshire Hathaway stock is not a buy.
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