There are many analysts who believe a bear market is on the way next year as inflation, unemployment, and high interest rates continue to weigh on the U.S. economy. Plenty of concerns abound also that a technology stock decline will ensue after this year’s AI-powered rally.
Because of the uncertainty, an alternative may well be the historic proven winner founded by billionaire Warren Buffett, Berkshire Hathaway (NYSE: BRK.B).
Buffett’s investing philosophy has been front-and-center since the mogul bought Berkshire Hathaway–then a failing textile mill–and transformed it into one of the world’s most successful companies. In the process, Berkshire stock has outperformed the S&P 500 by a gargantuan amount. BRK.A has gained annually on average over 20% versus about half that amount for the broader based index.
Some might think that the 94-year-old Buffett might be content to rest on his laurels, but he and his firm have continued to make headlines. First, Berkshire shifted away from some of the stocks that have anchored its portfolio for years, and then Buffett adopted a different strategy for his firm’s multi-billion-dollar portfolio.
Why Is Berkshire Hathaway A Good Stock?
The company’s portfolio is what sets it apart from other mega-cap organizations. Unlike NVIDIA or Apple, Berkshire Hathaway makes a fortune from investment gains in addition to the sales of products and services.
In many ways, buying a share of Berkshire is similar to buying a share in a mutual fund that is run by the world’s most famous investor minus an expense ratio. Buffett’s strategies have been battle-tested, and Berkshire’s biggest gains aren’t in the rearview mirror by any means. Indeed, BRK.B has outperformed the S&P 500 25.2% to 21.9% year-to-date.
Still, Berkshire is a firm not a fund, albeit a very unique one. Though Berkshire reports its earnings every quarter like other publicly traded companies, it should be measured by a different yardstick.
In the second quarter of 2024, for instance, Berkshire brought in net income of $30.35 billion, which was over 15.5% lower year-over-year. Fluctuation in the company’s earnings can be attributed to the firm’s reliance on its portfolio, which has been affected by a volatile market.
The company’s operating earnings offer a clearer picture of Berkshire’s success because it removes market volatility. In Q2, Berkshire increased its operating earnings by 15% year-over-year.
In addition to increasing operating earnings, another aspect of Berkshire’s success is whether it is able to buy back its shares. Buffett has aggressively bought Berkshire stock for some time, a sign that he believes it is undervalued. He bought back roughly $345 million in Berkshire shares in the second quarter. Admittedly that is a nominal sum relative to past quarters, suggesting Berkshire may be ever closer to fair value.
What Stocks Is Berkshire Hathaway Selling?
While Buffett might believe in his own firm, he has continued to distance himself from some of his favorite stocks.
Apple has been the most prominent name in the Berkshire portfolio since 2012. Once accounting for over 40% of the portfolio, Buffett sold the stock aggressively this year as the iPhone maker struggled with slumping sales and slow AI implementation.
Despite the fact that Apple still has a strong brand, ecosystem, and competitive moat, all aspects Buffett has praised in the past, Berkshire sold off almost half of its remaining stake in Apple in Q2.
Berkshire has also continued to scale back its investment in Bank of America. Buffett just sold more Bank of America stock, dropping his stake in BofA to below 10%.
What Stocks Are In Berkshire Hathaway’s Portfolio?
Even after paring back his Apple holding, the iPhone maker still accounts for 30% of Berkshire’s $280 billion portfolio. After Apple is credit card company American Express, which accounts for 12.5% of the firm’s portfolio.
After Apple, American Express, and Bank of America comes Buffett’s long-time favorite Coca-Cola, which makes up 9% of the firm’s holdings. The company’s fifth-biggest company is oil and gas company Chevron, which accounts for 6.6% of the portfolio.
One of the main differences between Berkshire’s portfolio and many ETF portfolios is that Berkshire doesn’t have a heavy technology focus. The firm doesn’t own many AI-forward stocks, including NVIDIA, Microsoft, and Google, and Berkshire only has a small stake in Amazon.
What Stocks Is Berkshire Hathaway Buying?
Buffett trimmed his stake in Chevron in Q2 as well, which might cause investors to wonder if the billionaire is signaling that the market is in for a tough year. Or it could be that Buffett hasn’t been able to find a stock he likes.
The billionaire has often said that there aren’t many opportunities to buy good stocks at a discount, but he has continued to buy shares of oil and gas company Occidental Petroleum, including a $7.25 million purchase in Q2. Occidental now accounts for 5.75% of Berkshire’s portfolio.
Aside from that, Buffett has mostly kept his cash on the sidelines in Treasury bills, both 3-month and 6-month durations. To say its a significant stockpile of cash is an understatement. Berkshire had cash and equivalents of over $271 billion by the end of Q2.
With no stock investment on the horizon, Buffett has increasingly put his funds into treasury bills. Short-term treasuries are on track to yield Buffett around $12 billion on his $234.6 billion allocation.
What Is A Fair Price For Berkshire Hathaway Stock?
Fair value for Berkshire Hathaway stock is $460.33 per share according to the consensus estimate of Wall Street analysts.
Admittedly, Berkshire is a unique company that can be hard to nail down. Buffett has sought to hedge against volatility by buying companies like GEICO, railroads, and the Berkshire Hathaway Energy Company.
Because of Buffett’s investing success, it will always be the company’s stock moves that garner the most attention.
That echoes the sentiment of Buffett himself, who said that Berkshire would only slightly outperform the market from here. However, the company’s lack of emphasis on tech stocks and massive cash stockpile make Berkshire an intriguing play, especially if next year turns out rocky.
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