Big tech stocks have dominated headlines on the strength of their artificial intelligence potential. However, the exceptional growth stories of stocks like NVIDIA have recently taken a breather as valuations fell by a massive $1.7 trillion in Magnificent 7 stocks in just a 2 week period.
Market jitters have grown also on the back of the Crowdstrike, formerly considered a rock-solid play, internet outage. Those shares are now down by over 34% in the past month alone.
The risks involved with single-stock investment might entice some investors to move to ETFs entirely. However, there is a stock that offers diversification without the technology concentration found in indexes like the S&P 500.
So, what is a very good stock to invest in now? Berkshire Hathaway (NYSE: BRK.B) is a good stock to invest in now with operating income rising 39% year-over-year last quarter.
An under-appreciated fact about Berkshire is that while mutual funds and ETFs charge annual fees, Berkshire acts like a diversified fund but charges no fees. And right now it’s looking like a very good stock to buy.
Why Is Berkshire Hathaway A Good Stock?
LIke ETFs based on the benchmark index, Berkshire Hathaway delivers instant diversification. However, a share of an S&P 500 ETF gives buyers a piece of the top 500 American stocks by market capitalization. As companies’ valuation moves up and down, so does their concentration in the index.
Because the bulk of Berkshire’s income comes from investment gains, buying a share of BRK.B is like buying a piece of Warren Buffett’s portfolio. That’s an enticing proposition for investors, given the long-term success of the world-famous investor. And Buffett’s strategy is still paying off; Berkshire outperformed the S&P 500 over the past year.
One drawback on the surface of Berkshire is that its quarterly net income can swing wildly based on unrealized investment gains or losses. Buffett largely advocates that investors focus less on those and more on cash flows. Regardless, in the first quarter of fiscal year 2024, Berkshire brought in net income of $12.7 billion, which was around 64% lower year-over-year.
It’s precisely those paper fluctuations that spark Buffett to encourage investors to view Berkshire’s quarterly earnings reports differently from other firms. Investors should look to the company’s operating earnings, according to Buffett, to get a better understanding of the company’s success.
Operating earnings smooth out some of the impacts of the market on Berkshire’s earnings, and the firm increased its operating earnings by 39% from last year in Q1. Berkshire also reduced its share count by repurchasing $2.6 billion in the period.
However, one of the company’s strongest attributes is its massive amount of cash. Berkshire Hathaway had cash and cash equivalents of roughly $189 billion in Q1.
What Stocks Is Berkshire Hathaway Buying?
The powerful cash position means Berkshire is set up to achieve one of its primary objectives: investing in good companies that are trading at fair prices.
Though Buffett has often said there aren’t many opportunities in the market, he has continued to invest heavily in oil and gas company Occidental Petroleum. In fact, Berkshire bought OXY for nine straight days in June, increasing the firm’s position in OXY to a 29% stake.
Occidental is now Berkshire’s sixth-largest holding, and the heavy investment in an oil company might perplex investors given worldwide initiatives to adopt renewable energy. However, those efforts have begun to stagnate, as evidenced by the dramatic recent slowdown in electric vehicle adoption.
It should be noted that though Berkshire has a significant stake in Occidental. OXY only accounts for approximately 4.6% of Berkshire’s $331 billion portfolio. However, Buffett’s fifth-largest holding is Chevron, which makes up 5.85% of Berkshire Hathaway’s portfolio.
The heavy concentration in oil and gas companies likely means that Buffett believes fossil fuels will continue to play a strong role in the worldwide energy landscape.
What Stocks Is Berkshire Hathaway Selling?
What Berkshire is selling is just as important as what the firm is buying. After a long-time loyalty to Apple, Buffett finally began to move away from the iPhone maker. Apple has slumped due to lagging AI innovation and slumping iPhone sales, especially in China.
Buffett has touted Apple’s strong competitive moat and solid ecosystem, but Berkshire sold off $21 billion of its Apple stake in Q1, representing 116 million shares. However, Apple is still Berkshire’s top holding, making up over 40% of the firm’s portfolio.
Berkshire also trimmed its stake in its second-biggest holding, Bank of America. After reducing its position by over 5% in the first quarter, Buffett recently sold off another 34 million shares. As with Apple, Buffett still has a significant stake in Bank of America, which accounts for 12.6% of the firm’s portfolio.
What Stocks Are In Berkshire Hathaway’s Portfolio?
After Apple and Bank of America, long-time Buffett favorites American Express and Coca-Cola are the third- and fourth-largest components of Berkshire’s portfolio. American Express accounts for over 10% of Berkshire’s holdings, while Coke makes up 7.38%.
One of the main differences between Berkshire stock and the S&P 500 is the big tech concentration is much less dramatic. Berkshire doesn’t own NVIDIA, Microsoft, or Alphabet, and the firm only has a small stake in Amazon.
The lack of big technology stocks, other than Apple, means Berkshire is an intriguing alternative to S&P 500 ETFs.
Why Is Berkshire Hathaway Stock A Very Good Investment?
Even though investment gains are the main source of income for Berkshire, there’s more to the firm than its stock investments. Buffett has sought to hedge against volatility by buying companies like GEICO insurance, railroads, and energy firms.
However, the firm’s stock moves will always garner the most attention. That is for good reason, given Berkshire Hathaway’s proven success. Berkshire’s strong cash position means the firm is in prime position to move again if it identifies an investment opportunity.
To say that Berkshire Hathaway has been a very good investment is an understatement. Especially if big-tech stocks take a step back, BRK.A should be on every investor’s radar.
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