What’s Wrong, Warren? Berkshire Hathaway Stock Has Been Hit Hard in June.

Berkshire stock is rallying Friday with the overall market. The Class A stock is up 2.7% at $413,125 while the Class B shares have risen 2.9% to $275.24. The S&P 500 is up more than 2%. Berkshire is still ahead of the S&P 500 this year with a year-to-date loss of 8 % against 18% for the index.

The drop is exciting some Berkshire investors because the stock now trades for 1.3 times Barron’s estimate of its June 30 book value, compared with more than 1.5 times at its March high, when the Class A shares topped out at $544,000.

Berkshire’s book value considerably understates what Buffett calls its intrinsic value. Berkshire’s earnings power should get a boost from some of Buffett’s investments this year, including Chevron (CVX), as well as rising short-term interest rates. Berkshire’s cash holdings could soon be producing $2 billion of annualized income against close to zero in 2021.

Berkshire was an aggressive buyer of its stock in late 2021 when the stock traded at a similar valuation to now.

So why is the stock lower? Berkshire has been taking a hit on its $390 billion equity portfolio, with Barron’s estimating a drop of more than $60 billion since the start of the second quarter. The declines have been led by Apple (AAPL), Berkshire’s largest equity investment, and No. 2 Bank of America (BAC). Chevron has been hit more recently as oil stocks have dropped sharply.

Barron’s estimates that Berkshire’s June 30 book value will be about $315,000 per class A share, down from $345,000 on March 31—reflecting paper losses on the equity portfolio and a projected $7 billion of after-tax operating earnings in the current quarter.

Berkshire has scaled back its stock repurchase program this year, and that may be sending a message that Buffett doesn’t view the stock as being so cheap.

Berkshire bought back $3.2 billion of stock in the first quarter, down from the $7 billion quarterly pace in 2021.

Buffett’s filing recently on his Berkshire holdings—following his big annual gift of Berkshire stock—to various philanthropies indicated that the company had bought back just $1 billion to $2 billion of stock in the second quarter through mid-June. Berkshire bought no stock in April when the shares were near their peak, Buffet said the annual meeting on April 30.

The full quarterly buybacks will be reported in early August along with second-quarter earnings. It’s possible that Buffett has stepped up buybacks lately with the stock under pressure.

Buffett had been favoring the purchase of stocks in other companies over buybacks in the first quarter when Berkshire was a net purchaser of more than $40 billion of equities.

It also hasn’t helped Berkshire stock that financials have been out of favor lately. JPMorgan Chase (JPM) and other big bank stocks like Bank of America hit or were close to new 52-week lows Thursday. Berkshire is a diversified conglomerate led by the Burlington Northern railroad, a giant utility business (Berkshire Hathaway Energy), and big insurance operations, but it often trades with financial stocks.

With the latest pullback, Berkshire stock is behind the S&P 500 over the past three, five, and 10 years. It’s up 12.6% annually over 10 years against a 13.2% yearly gain for the index through Thursday.

The decline comes less than two months after Warren Buffett was basking in shareholder adulation at the company’s first in-person annual meeting in three years with the stock riding high.

Buffett, 91, likely is unfazed by the drop—having seen even worse declines in his 57 years at the helm—and may be using the stock’s fall as an opportunity to reignite the company’s repurchase program.

Write to Andrew Bary at [email protected]