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 after serving up another earnings beat? 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 now-departed top lieutenant, Charlie Munger. Following their value investing philosophy, the company owns huge stakes inAmerican Express (AXP),Coca-Cola (KO) and other heavy hitters.
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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).
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 inBrazilian 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 its position in 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 current holdings. It bought more Chevron (CVX) and Sirius XM (SIRI).
Meanwhile, the Oracle of Omaha revealed at the firm's annual shareholder meeting that the company sold its entire stake in Paramount Global (PARA)) at a loss. The firm owned 63.3 million Paramount Class B shares at the end of 2023.
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 added 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 EnergyGas 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 Forms New Base
Berkshire Hathaway stock has formed a new flat base with an ideal entry point of 430.00, according to MarketSurge analysis. The stock has backed off somewhat from all-time high levels.
BRKB has skidded below both its short-term moving averages and its 50-day moving average. The latter is a key technical benchmark. The stock has been trending downwards of late and failed in a previous attempt to retake the 50-day line.
The relative strength line is moving sideways again but remains below the a 52-week high it reached in September as well as its February highs. This gauges a stock's performance compared to the broader S&P 500. BRKB's Relative Strength Rating of 71 means it has outperformed 75% of stocks in terms of price performance over the past 12 months.
The stock's price performance in recent years has been solid but not been stellar. BerkshireHathaway 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 in 2024 the stocks has made a gain of nearly 14% while the S&P 500 is up around nearly 9%.
All-around performance is strong, but not quite ideal, for Berkshire Hathaway stock. This is reflected in its IBD Composite Rating of 86 out of 99.
Earnings have grown by an average 27% 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 6% in 2024 and then slow to 5% growth in 2025.
Big Money has been a net seller of BRKB stock of late, which is reflected in its Accumulation/Distribution Rating of C-. In total, 47% of its stock is held by funds, with a further 33% is held by management. Fund ownership fell in the past couple of quarters.
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 first-quarter earnings per share rose 41% to $5.19, beating views, as revenue rose 5% to $89.9 billion.
The company also saw its operating profit jump 39% to $11.222 billion. This was boosted by big gains in insurance underwriting and insurance investment income.
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.
Total net income, which includes investment gains or losses, plunged 64% to $12.702 billion. This was a smaller decline than analysts feared.
Warren Buffett Cash Mountain Hits Record Levels
Berkshire's cash pile rose to record levels in the most recent quarter to $188.99, up from the previous quarter's $167.6 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 ramped up the pace of repurchases of its own stock during the first quarter. Buffett bought back $2.6 billion worth of shares. That was an increase the previous quarter's $2.2 billion.
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
Following earnings, CFRA analyst Catherine Seifert maintained both her buy rating on BRKB stock as well as her 472 price target.
"Operating revenue growth of 5.2% lagged our forecast on 6% lower rail revenues, 19% lower utility revenues, and muted (9%) insurance revenues amid a strategic pullback from GEICO," she said in a May 6 research note. "One point to emerge from the annual meeting was Buffett's comment that heir apparent Greg Abel should be armed with capital allocation responsibility when he succeeds Buffett. This represents a significant consolidation of power around Abel."
Difference Between BRKA Stock And BRKB Stock
The most obvious difference between Berkshire Hathaway's A class and B class shares is the price. Trading around 400 a share, BRKB stock may be considered relatively expensive, BRKA stock is the most expensive on the market. It currently trades north of 600,000 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.
Legendary Investor Charlie Munger Dies
One person whose legacy was honored at this year's annual meeting was Charlie Munger. The legendary Berkshire executive died in late November at the age of 99.
"Berkshire Hathaway could not have been built to its present status without Charlie's inspiration, wisdom and participation," company Buffett previously said.
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."
Is Berkshire Hathaway Stock A Buy Now?
Berkshire Hathaway stock has generally performed in-line with the S&P 500 index in recent years after a period of underperformance.
Berkshire stock is now forming a new base which could offer a buying opportunity to those who wanted to own some BRKB due to the company's diversified portfolio of businesses. However, at the moment, it remains some way off its potential entry point.
And while Wall Street sees EPS growth ahead for Berkshire in 2024 and 2025, 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 theIBD 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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