Berkshire Hathaway (NYSE:BRK.A, BRK.B) has historically been one of the best investments to make at any given moment in the last 60 years of stock market history.
Warren Buffett, who announced his retirement just days ago at the company’s famous annual shareholders meeting, has delivered a total return of 5,502,284% during his tenure at Berkshire.
Is Berkshire Hathaway still a good investment to buy in a market that could be facing a recession in 2025, or has the investment conglomerate finally started to run out of steam?
Berkshire Hathaway Investment Portfolio
When looking at Berkshire Hathaway, the most obvious place to start is with its famous portfolio of investments in other publicly traded companies. Right now, Berkshire’s top five holdings are Apple, Bank of America, American Express, Chevron and Coca-Cola. Together, these five stocks make up a bit more than 70% of Berkshire’s public stock portfolio.
One of the first things to notice about these major Berkshire holdings is that all of them are anti-fragile, competitively dominant businesses that will likely continue to perform well under practically any economic conditions. This is one of the notable strengths of Buffett’s investment strategy, which hinges on making large, concentrated investments in high-quality companies while they trade at attractive prices.
Many of Berkshire’s largest holdings are very strong dividend producers, a characteristic that tends to help even out returns during periods of market instability. Coca-Cola, for example, yields 2.7%, while Bank of America yields 2.5%.
These dividend growth stocks have helped Berkshire ride out past market downturns and will likely provide it with some extra support in the event of a larger selloff or a recession later this year.
Berkshire’s Lackluster Q1 Performance
Berkshire Hathaway’s legendary status doesn’t prevent it from having the occasional bad quarter. Such was the case in Q1 when Berkshire’s operating earnings fell to $9.64 billion from $11.22 billion a year earlier.
The drop was mostly the result of weaker performance from the company’s insurance business. Neither the Q1 results nor the news of Buffett’s retirement as CEO have deterred Berkshire’s loyal investors.
In fact, shares of BRK.B have risen more than 1.5% in the past five days despite these two pieces of somewhat unwelcome news.
Berkshire May Have Reached Fair Value
One slight drawback to Berkshire Hathaway is the fairly strong possibility that the stock has finally become fairly valued after trading at a discount for several years.
Buffett, never one to miss a value opportunity, stopped buying back shares of Berkshire last year after a 6-year streak of buybacks.
Though this doesn’t indicate that Berkshire has become too expensive, it does show that Buffett no longer saw enough extra value in Berkshire shares to allocate cash to repurchasing them.
Despite potentially being fairly valued, there’s no compelling case to be made that Berkshire has become overvalued. The stock still only trades at a P/E of 13.1. While slightly above the P/E average over the last couple of years, this is far from an outlandish price to pay for a business as strong and as historically successful as Berkshire.
What Does Berkshire’s Future Look Like?
Although Buffett is stepping down as CEO, he will still have a guiding influence at Berkshire as chairman of the board. More importantly, though, Greg Abel is a very well-qualified replacement for Buffett at the company’s head.
Abel has been overseeing businesses like the BNSF railroad and others owned by Berkshire for years and has been praised many times by Buffett and others for his keen business instincts.
Abel is taking over at a time when Berkshire could have enormous opportunities to make new investments. The company ended Q1 with nearly $350 billion of cash on hand, a stockpile that was built up as Buffett strategically sold parts of its investment portfolio last year during the market’s massive bull run.
With the return of volatility thanks to trade and recession fears, Berkshire Hathaway may finally be able to deploy some of this cash into stocks that have sold off to below their intrinsic value.
In fact, Buffett revealed at the annual meeting that Berkshire had been close to pulling the trigger on a $10 billion investment not long ago.
Although he declined to name the company he and his team had been looking at and the investment ultimately wasn’t made, the fact that such a large investment was under consideration finally shows that Buffett is seeing deals again. As market volatility continues, it’s likely that Buffett and later Abel will continue to find new opportunities to put some of Berkshire’s cash to work at attractive rates of return.
On the whole, the future still looks quite bright for Berkshire Hathaway. Even with Abel taking the reins on investment decisions, the culture that Buffett and his late partner Charlie Munger created appears set to continue. Though Abel will probably never be able to match the kind of returns Buffett and Munger generated due to Berkshire’s much larger present size, his tenure will likely see Berkshire continue to expand through careful, disciplined investment.
Is Berkshire the Best Stock to Buy Now?
Berkshire Hathaway is probably among the most solid companies to own in both good times and bad times, particularly given its modest 13x earnings multiple now.
It’s also worth considering how resilient Berkshire is in an increasingly uncertain economic climate. Even though its insurance business stumbled in Q1, the company’s massive portfolio of both publicly traded and wholly-owned investments is well-diversified enough to see it through an economic downturn.
The massive cash stockpile it holds also helps significantly, as Berkshire can make new investments at attractive prices without having to resort to taking on debt.
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.