Shares of Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B), like most other stocks, have been under pressure over the past few months. However, after Apple’s (NASDAQ:AAPL) recent guidance cut, BRK stock took a hit, falling almost 10% on Jan. 3. Apple is now down almost 40% from its highs, but that hasn’t hurt BRK stock as much as some may have anticipated.
Now that some of Berkshire’s largest holdings are coming under pressure, though, should investors be more concerned about Berkshire Hathaway stock? Specifically, should investors avoid or sell BRK stock in the wake of the struggles of some of Berkshire’s holdings? Let’s take a look.
Berkshire’s Holdings
Apple is Berkshire’s largest holding, as BRK currently owns about $36 billion of Apple stock. The company owned over 252 million shares of Apple stock as of Berkshire’s latest 13-F filing, although we’ll find out what Buffett’s been up to soon enough. Given how much BRK has loved Apple in the past and Buffett’s generally long-term outlook, I’d imagine that Berkshire has used the 40% plunge of Apple stock to buy more of the tech giant’s shares.
But Berkshire’s $36 billion of Apple stock is well below the $59 billion that it had in October when AAPL was trading for more than $230 per share. And of course, Apple stock sometimes goes on large runs as well as extended pullbacks.
After Apple’s guidance cut, investors are justifiably concerned about its business. However, the company’s results will have many positive aspects as well. Given the large beating that Apple stock has already suffered, it’s reasonable to believe that buyers are just around the corner.
The fact that Berkshire’s largest holding took a 40% beating over the last 13 weeks is a tough pill to swallow for owners of BRK stock. But the performance of AAPL stock wouldn’t be so negative for BRK stock if BRK ’s next two largest holdings weren’t under pressure too. Specifically, the company has a $21.5 billion stake in Bank of America (NYSE:BAC) and a $20.6 billion stake in Wells Fargo (NYSE:WFC).
In fact, over the last three, six and 12 months, Berkshire only has one stock {Coca-Cola (NYSE:KO)} in the green among its top 10 largest positions.
Now obviously Berkshire owns a lot of private companies, and has a ton of cash and strong cash flow. I’m not saying it should be down 40% like Apple, but maybe BRK.B stock could drop more than some investors realize.
Trading BRK Stock
There’s little doubt that Apple’s recent plunge sparked concerns about BRK stock last week. Berkshire Hathaway stock went from $205 to $191 in the blink of an eye, although it has subsequently rebounded to $197, putting it well above a critical support zone between $185 and $190 and above its 100-week moving average.
So what should investors be looking for when it comes to BRK stock?
Given how well Berkshire Hathaway stock has held up, I don’t hate the idea of a long position. Specifically, some investors may want to use cash-secured puts as an attractive alternative means of getting long. Others may want to wait for a potential, larger decline of BRK.B stock.
If the overall market comes under pressure this month, BRK stock could head to the bottom of its support, near $185. If the market’s decline is prolonged, Berkshire Hathaway stock could drop a bit further, to the backside of its prior-downtrend resistance, which is depicted by the blue line. If that scenario unfolds, BRK.B stock could end up in the low-$180s.
My one concern is Berkshire’s earnings. The company usually releases earnings just before the weekend, giving investors time to sort through the report. Due to accounting changes, though, the company has to report unrealized gains or losses in its stock portfolio as net income. That’s going to result in an ugly number this quarter, but we’ll have to see how investors react to it.
I like BRK.B stock as a long-term holding, but I believe that it could drop in the short-term.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long AAPL and JPM.
