The stock market has been getting volatile as trade-war worries continue to rock U.S. equities. Volatility is picking up, and while we’re not seeing full-blown panic at the moment, investors are certainly taking a more cautious tone.
Could investors look to buy a relatively safe name like Berkshire Hathaway (NYSE:BRK.B, NYSE:BRK.A) stock going forward? Berkshire Hathaway stock has been hit but is holding up near its support, making it worth examining. Not to mention, it’s Warren Buffett’s company.
In a way, BRK.B stock is a holding company, given its massive equity portfolio. Berkshire Hathaway stock sports a market cap of $500 billion and has an equity portfolio worth roughly $200 billion. BRK.B also has a large portfolio of privately-owned companies, such as Geico, Dairy Queen, Burlington Northern, Duracell, Fruit of the Loom, Precision Castparts and See’s Candies, among many others.
On the public equity side, its largest position is Apple (NASDAQ:AAPL), which is more than double its next biggest position, Bank of America (NYSE:BAC). BRK.B also owns stakes in Wells Fargo (NYSE:WFC), Coca-Cola (NYSE:KO), American Express (NYSE:AXP), Kraft Heinz (NYSE:KHC), JPMorgan (NYSE:JPM), Delta Air Lines (NYSE:DAL) and a number of others.
Valuing Berkshire Hathaway Stock
Because Berkshire is now forced to report its earnings using a mark-to-market accounting method, the company can show huge losses or gains in any given quarter. Its earnings fluctuate primarily based on the performance of its stock holdings. As one can imagine, Berkshire’s earnings have become quite volatile.
BRK.B is expected to earn $10.30 per share of Berkshire Hathaway stock this year, up 2.6% from the prior year. BRK.B stock is currently trading at about 20 times analysts’ consensus 2019 EPS estimate, which isn’t a bad premium for the Oracle of Omaha’s business. But that doesn’t really tell the whole story, partly because of the way that Berkshire has to report its gains now.
Berkshire Hathaway stock won’t provide the growth of a high-octane cloud start-up, but it’s a well-managed and disciplined firm that knows a good company when it sees one. Interestingly, BRK.B has a unique type of “cash problem” now. Berkshire held $114 billion in cash and short-term securities as of its most recent quarter. However, it can’t find enough good deals out there in which to invest.
But BRK.B has a ton of cash and so the company has understandably turned to buying back a decent amount of Berkshire stock. BRK.B stock worth $10 billion helped finance the deal between Anadarko Petroleum (NYSE:APC) and Occidental Petroleum (NYSE:OXY). Berkshire received a great return in exchange for those shares, but Berkshire still has plenty of money in the vault.
Since Berkshire is such a well-run and well-financed company, buying Berkshire Hathaway stock sure isn’t the worst investment on the block.
If BRK.B stock corrects,, longer term buyers may have a good opportunity. Berkshire Hathaway stock has bounced off the $197-$198 area multiple times in the past year. It will hopefully do so again if the shares reach that level again. Also worth pointing out is that the 100-week moving average of BRK.B stock stands at $198, while the 50-week is at $204, near its current levels.
The fact that Berkshire Hathaway stock has dropped slightly below $204 isn’t a bad development, either, particularly for long-term investors.