Berkshire Hathaway Inc. (BRK.B, BRK.A) is synonymous with Warren Buffett, with the company’s quarterly investment disclosures among the most closely watched filings on Wall Street. But while many investors focus on which new Warren Buffett stock is gaining his attention and which is falling behind, BRK.B stock itself shouldn’t fall by the wayside.
Because Berkshire Hathaway stock is looking better than ever.
This statement may seem odd to those who closely follow BRK.A stock or the cheaper BRK.B shares. After all, the biggest holdings of this investment giant — stakes in Wells Fargo (WFC), Coca-Cola (KO), IBM (IBM) and American Express (AXP) — haven’t been going like gangbusters lately; Coca-Cola is suffering amid a strong dollar, IBM is struggling to keep up with more innovative tech companies, and American Express is still hurting from its parting with Costco (COST).
But the tale of BRK.B and the legacy of Warren Buffett at Berkshire is deeper than just these megacaps and their short-term performance.
Bullish Case for BRK.B Stock
For starters, let’s remember the biggest move by Berkshire Hathaway in recent years — a combined $9.5 billion or for the leveraged buyout of Heinz and a subsequent stake in Kraft to smooth a merger between the consumer products giants. Now that Kraft Heinz Co (KHC) has started trading publicly again at more than $93 billion in total market value, Buffett’s stake is valued at about $25 billion.
That’s a heck of a gain in just two years, and shows that BRK.B has not lost its penchant for outperformance.
In fact, numbers are strong across the board. According to estimates by Barron’s, “Operating earnings may total $19 billion after taxes this year, up 18% from 2014 and more than double the 2006 total.”
Meanwhile Berkshire Hathaway stock is actually underperforming the market, with BRK.B stock down about 6% year-to-date while the S&P 500 is sitting on a 1% gain. Trading at about 1.4% its book value, Buffett’s investment company seems to be at worst fairly valued and at best a bargain buy on this pullback.
If you’re one of those folks who fears for the future of BRK.B under an aging Buffett, keep in mind that BRK.B stock has more than $60 billion in cash on the books to pull off other big-time acquisitions in the future.
Yes, Berkshire and its 80-plus subsidiaries are a beast to manage, and some of the name cache of Buffett will undoubtedly pass away once he does. But this company is actually bigger than just one man now, with the unique model of Berkshire taking profits and dividends from existing investments in order to find value in new investments — then lather, rinse and repeat.
It’s not impossible for someone to screw this up with one or two hare-brained schemes, but given the sheer capital might of Berkshire it’s going to be an incredibly difficult task for someone to create any long-term damage.
Or as Warren Buffett himself wrote in last year’s shareholder letter, ” I believe that the chance of permanent capital loss for patient Berkshire shareholders is as low as can be found among single-company investments.”
That’s confidence and peace of mind you can take to the bank, particularly if you’re a value investor in it for dividends and long-term stability.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at email@example.com or follow him on Twitter via @JeffReevesIP.
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