Berkshire Hathaway (BRK.B) chairman and legendary value investor Warren Buffett is among the best investors of all time, with an immense fan following. The “Oracle of Omaha” has been in the news this month for two reasons. The first was the annual shareholder meeting in Omaha, which is popularly known as “Woodstock for Capitalists.”
More recently, the conglomerate released its 13F for Q1, which could have been a nonevent, if not for the disclosure of the “mystery holding” where Berkshire has been building a stake. After keeping the holding confidential for three quarters, Berkshire revealed that it holds 26 million shares in Zurich-based insurer Chubb (CB). The stake was worth $6.7 billion at the end of March, making it Berkshire’s ninth biggest holding.
Buffett Has Been a Net Seller of Stocks
Berkshire was a net seller (i.e., more stock sells than buys) to the tune of $17.3 billion in Q1. In fact, the conglomerate now has been a net seller of stocks for six straight quarters. Thanks to a combination of strong operating earnings and proceeds from stock sales, Berkshire Hathaway’s cash pile soared to a record high of $189 billion at the end of March.
Buffett has forewarned that the company's cash pile might surpass $200 billion by the end of the current quarter. The nonagenarian, who lost his long-time partner Charlie Munger last year, has been struggling to find investing opportunities in publicly traded companies. Also, despite that soaring cash kitty, he hasn’t been able to pin down a major acquisition.
The company’s last major acquisition was Alleghany Corp. for $11.6 billion in 2022. Incidentally, that same year, Buffett opened Berkshire Hathaway’s coffers and invested aggressively after being a net seller in both 2020 and 2021.
However, while Buffett hasn’t been able to find companies that fit into its value investing framework, there is one value stock that he has been buying every quarter. He also has almost all of his life savings (or, more aptly, his massive fortune) parked in this stock.
Buffett Loves Berkshire Hathaway Stock
Of course, we are talking about Berkshire Hathaway stock itself. Buffett spent over $50 billion on repurchasing Berkshire shares between 2020 and 2021. Since then, Buffett hasn’t been as aggressive in buybacks, and Berkshire repurchased $7.9 billion and $9.2 billion worth of its shares in 2022 and 2023, respectively. In Q1 2023, he spent $2.6 billion on repurchasing Berkshire Hathaway shares.
It would also be pertinent to look at Berkshire’s buyback policy. Until 2018, it used to repurchase shares only as long they were up to 1.2x of the book value - but subsequently, the company made the policy flexible, giving more discretion to Buffett to buy back the shares.
Let’s think of it this way. As a capital allocator – which is his primary job at Berkshire – Buffett has multiple ways to invest or park the company’s cash pile. It can either be used to invest in portfolio companies (that Berkshire fully owns) to grow their business; to buy shares of publicly traded companies; to acquire a listed or private company; to park the money in Treasury securities; or to repurchase Berkshire shares.
As things turned out, for the last couple of years, Buffett has been finding solace in Treasuries and Berkshire shares in the absence of other compelling investment opportunities.
Is Berkshire Hathaway Stock a Good Buy?
Berkshire is a diverse conglomerate, and apart from a portfolio of publicly traded companies – where Apple (AAPL) is the top holding – it holds several businesses ranging from industrials, energy, railroads, and insurance.
It is not an easy business to value, considering the many moving parts. However, we can still look at multiple metrics to gauge whether it's an attractive bet. For instance, its current price-to-book multiple stands at 1.57x, which is near record highs.
The stock’s next 12-month (NTM) enterprise value-to-earnings before interest, tax, depreciation, and amortization (EV-to-EBITDA) of 15.06x is also higher than historical averages. The same holds for other metrics, like price-to-sales and EV-to-sales.
That said, with U.S. stock market valuations at a premium to their long-term averages, Berkshire’s current valuation premium does not look exorbitant.
Overall, while the stock is not a screaming buy at these levels, it is one name that value investors can have as a core part of their portfolio. There are legit concerns over succession at Berkshire, especially whether Buffett’s hand-picked successor, Greg Abel, will be able to match his performance – if not persona.
However, I believe that the concern could be overblown, and Berkshire Hathaway will continue to be the value behemoth that it is now. When it comes to Berkshire stock though, given the current valuations, I would wait to add any new positions and follow Buffett, instead, to sit on cash for the time being.
On the date of publication, Mohit Oberoi had a position in: BRK.B , AAPL . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
