Is It Too Late to Buy Berkshire Hathaway?

With a robust market cap of over $899 billion, Warren Buffett’s investment conglomerate Berkshire Hathaway Inc. (NYSE:BRK.A; NYSE:BRK.B) has a remarkable track record of outperforming the S&P 500 index in 39 out of 58 years since Buffett assumed leadership in 1965. 

According to Buffett’s annual letter to shareholders, the company rewarded its shareholders with a staggering gain of roughly 4,384,748% versus the S&P 500’s gain of 31,223% from 1965 to 2023.

The stock has surged by more than 30% over the past year buoyed by a solid fiscal 2023 fourth quarter and full-year financial performance, leaving investors and analysts wondering if the company would make history by becoming the first non-tech company to achieve a $1 trillion market cap.

However, Buffett’s letter mentioned that most companies capable of making a difference are already part of Berkshire’s portfolio. Thus, the possibility of “eye-popping” returns in the near term is limited.

So, does the stock truly have no extraordinary upside potential left in it? 

Does Berkshire’s Portfolio Match Buffett’s Strategy?

Beyond investing in only undervalued stocks, buy-and-hold investor Warren Buffett looks for a good company rather than a good stock. Solid fundamentals such as an economic moat, high brand loyalty, reliable dividend payments, and strong management teams influence his decision-making as much as, if not more so, than attractive pricing.

Berkshire’s portfolio clearly reflects his investment philosophy of diversifying across different sectors. As of fiscal year 2023, some of Berkshire’s top holdings such as Apple Inc. (NASDAQ:AAPL) and The Coca-Cola Company (NYSE:KO), each of which enjoys impressive brand loyalty and highly capable management teams.

Despite marginally trimming his holdings in Apple in 2023, Apple remains Berkshire’s top holding. Last year Buffett highlighted his faith in Apple’s business model, even labeling it as the best business that Berkshire owns.

Meanwhile, the fourth quarter of 2023 saw Berkshire increasing its stake in two major energy companies Chevron Corporation (NYSE:CVX) and Occidental Petroleum Corporation (NYSE:OXY), in part an attempt to benefit from the geopolitics-driven volatility in the energy sector.

While Berkshire has limited exposure to the tech industry other than Apple and Amazon.com, Inc. (NASDAQ:AMZN), the company’s goal is to gain from the technology trends across industries, particularly finance. This is evident from its notable investments in Bank of America Corporation (NYSE:BAC) and American Express Company (NYSE:AXP).

Moreover, all of Berkshire’s top five holdings pay dividends, which indicates Buffett’s interest in stocks that offer a steady income stream.

Does Berkshire Hathaway’s Financials Justify the Hype Around the Stock?

Berkshire’s fourth-quarter operating earnings increased by 28% year over year, driven by solid performance in its insurance business.

Insurance underwriting rose by a whopping 430% year-over-year to $848 million, while insurance investment income increased 38% to $2.76 billion.

In addition, in the fourth-quarter, the company recorded year-over-year growth in its cash reserves, reaching $167.60 billion.

Meanwhile, during fiscal year 2023, the company’s total revenues increased by 20.7% year-over-year to $364.48 billion. The company reported a profit of $97.15 billion, compared to a loss of $22 billion in fiscal year 2022.

It should be emphasized that Buffett has advised Berkshire shareholders to largely ignore these swings because they are heavily influenced by share price swings. Instead, he recommends paying much closer attention to operating profits.

On that front, Berkshire’s operating earnings per share rose to $37.30 billion for the year, breaking the record of $30.80 billion set in 2022. Given the solid fourth quarter and full-year results, it’s understandable why its market capitalization is nearing the $1 trillion milestone.

Is It Too Late to Buy Berkshire Hathaway?

It is not too late to buy Berkshire Hathaway stock according to analysts, who hold a consensus price target of $438.50 per share, indicating a modest upside of 5.2%. With that said, enthusiasm for the stock isn’t exactly stellar with only one of the three analysts covering BRK.B recommending the stock as a Buy, while the remaining two analysts suggest holding the stock.

Despite Berkshire’s outstanding growth, Buffett’s cautionary note to investors may well have dimmed its appeal as an investment candidate. Nevertheless, it might be too early to adopt an entirely bearish outlook on the company’s shares.

In his annual communication, Buffett further emphasized that Berkshire is built to last and should do well compared to an average American corporation in the coming years. He highlighted the company’s history of outperforming the S&P 500 index even in economic downturns. However, he added that anticipating anything beyond marginally better is “wishful thinking.”

While Berkshire is not expected to deliver extraordinary price returns as it did in the recent past, given its resilience to economic uncertainties, it still remains a compelling investment choice.

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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.