What are the key takeaways from the 2022 Berkshire Hathaway Annual Shareholder Meeting that should influence your view on the firm?
Earnings Volatility Is A Mirage
The shocking decline in earnings from $11.7 billion in Q1 2021 to $5.46 billion in Q1 2022 stunned investors new to Berkshire Hathaway but there was little to be truly concerned about for long-term holders.
The reason for the volatility is that Berkshire is required to report unrealized gains and losses in its earnings reports. Berkshire holds investments in Apple, HP, Occidental Petroleum, Bank of America, and Wells Fargo. As the share prices of those holdings go up and down so too will earnings reflect those changes.
In essence, no value was lost but the perception of lost value was glaring.
Indeed if you step away from the accounting rues and look to the underlying operations, Berkshire reported $7 billion in earnings, which represented a year over year gain.
The takeaway is operations are running smoothly and growing, even if share price fluctuations would suggest earnings are on the decline.
Berkshire Hathaway Share Buyback Still In Place
Berkshire Hathaway has been public about its approach to share buyback plans. When Buffett and Munger believe Berkshire shares are undervalued, they will reduce shares outstanding through share buybacks.
Berkshire Hathaway share price rallied during Q1 2022. Despite that, the company continued to buy BRK.A shares. In fact, the top brass spent $3.1 billion on share buybacks. This isn’t quite as much as they’ve spent in prior quarters but it did result in a 4% lower share count than a year prior.
The smaller investment in buybacks could indicate that Buffett and Munger assess fair value at close to $540,000 per share. Still, they bought shares, which shows that they still believe the intrinsic value is higher than the current share price.
Now that the price has fallen again, don’t be surprised to see Berkshire Hathaway management take a more aggressive stance. Next quarter’s numbers could show that Buffett and co took advantage of the share price dip.
Berkshire Hathaway’s share price poses a high barrier to entry, but the company focuses on long-term growth from a diversified portfolio. It’s hard to find a more reliable investment option.
Berkshire Hathaway Cash Stockpile Invested
Berkshire Hathaway has been sitting on a giant stockpile of cash for quite some time. At the end of 2021, it had $140 billion in cash.
Some people might balk at the idea of holding so much cash in an inflationary environment. And it appears Buffett and Munger thought so too; they deployed a massive amount of cash during the quarter.
What Buffett Bought: Berkshire snapped up $25 billion of Chevron, $7 billion of Occidental Petroleum shares, $4 billion of HP, and about $600 million of Apple.
In addition, Buffett engaged in an arbitrage, buying 9.5% of Activision in anticipation of making a small percentage on the deal when it closes.
What Does Berkshire Hathaway’s Annual Meeting Mean for You?
Even after a dip, Berkshire Hathaway shares come at a premium. A single share will cost you about half a million dollars. For those who can’t afford the high price, Berkshire Hathaway B shares are priced more modestly a a few hundred dollars per share.
The overall takeaway is the business is firing on all cylinders. Revenues are forecast to grow nicely over the coming years:
- 2022: $292 billion
- 2023: $321 billion
- 2024: $336 billion
- 2025: $348 billion
Valuation multiples suggest the company still has considerable upside. EV/EBITDA is trading at 1.1x. Fair value sits at $544,000 per share according to a discounted cash flow forecast analysis. And Berkshire is trading at just 7.8x earnings.
An old favorite measure of valuation that Buffett used to pay close attention to was price/book – though it’s not his first measure any more of valuation. Regardless price/book is 1.4x in line with how it’s traded since 2018. Only in 2017 did valuation get higher than that, trading at 1.6x book value at the time.
#1 Stock For The Next 7 Days
When Financhill publishes its #1 stock, listen up. After all, the #1 stock is the cream of the crop, even when markets crash.
Financhill just revealed its top stock for investors right now... so there's no better time to claim your slice of the pie.
See The #1 Stock Now >>The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.