Warren Buffett is widely regarded as one of the greatest investors of all time. One way to share in his success is to invest in his firm,Berkshire Hathaway(BRKB). Berkshire stock is near a buy zone, but is it a good buy for you now? Let's take a close look at the fundamental and technical performance of the ultimate Warren Buffett stock.
Berkshire Hathaway is a conglomerate that owns some of America's most famous firms. It wholly owns the likes of Geico, Duracell, Dairy Queen, Fruit of the Loom and railroad operator BNSF.
Berkshire Hathaway is perhaps more famous for serving as an investment vehicle for Warren Buffett and his top lieutenant, Charlie Munger. Following their value investing philosophy,the company owns huge stakesin American Express(AXP), Coca-Cola(KO) and other heavy hitters.
But the definition of a Warren Buffett stock has evolved in recent years. Warren Buffett became a big investor in airlines such asDelta Air Lines(DAL). But he was left to rue his decision to go against his own long-held views about that industry's lack of profitability. The move blew up in his face as airline stocks were decimated due to the global coronavirus pandemic.
Under investment managers Todd Combs and Ted Weschler, Berkshire Hathaway has been increasingly sinking money into tech. It's taken large positions in established giants likeApple(AAPL), as well as younger companies like Brazilian payments companyStoneCo(STNE) and new software IPOSnowflake(SNOW). Berkshire also snapped up a stake inAmazon.com(AMZN).
Warren Buffett Doubles Down On Berkshire Stock
Warren Buffett spent matched the previous quarter's record spending on Berkshire Hathaway stock in the most recent quarter. Thefirm's results showed Berkshire repurchased about $9 billion in shares, steady with the record $9 billion in Q3.
These repurchases were also a big jump from the $5.1 billion in Q2. At the time, that was more than double the prior quarterly record of $2.2 billion in Q4 2019 and a shift from slower stock repurchases of $1.7 billion in Q1.
Buffett said the company has repurchased more shares since the end of 2020, and "is likely to further reduce its share count in the future."
While he has historically been reluctant to splurge on stock repurchases, he explained his change of heart in his latest annual letter to shareholders.
"The math of repurchases grinds away slowly, but can be powerful over time," he wrote. "The process offers a simple way for investors to own an ever-expanding portion of exceptional businesses."
Berkshire loosened rules for Buffett to buy back shares in 2018. With Berkshire steadfastly cautious on M&A in recent years, investors have been clamoring for more repurchases.
Berkshire Hathaway Tweaks Portfolio
Warren Buffett took a huge stake inVerizon(VZ) stock while dumping JPMorgan (JPM) stock entirely, according to thefirm's latest regulatory filing.
Its new Verizon stake is massive, with Berkshire paying $8.62 billion for 147 million shares. It now accounts for 3% of the portfolio, making it the No. 6 stock by number of shares held.
Buffett also opened new stakes inChevron(CVX),Marsh & McLennan(MMC) andEW Scripps(SSP) in Q4.
Berkshire dumped entirelyPfizer(PFE),JPMorgan Chase(JPM),Barrick Gold(GOLD),M&T Bank(MTB) andPNC Financial(PNC).
The conglomerate grew stakes by 117% inT-Mobile(TMUS), 34% inKroger(KR), 28% inMerck(MRK), 20% inAbbVie(ABBV), 11% inBristol-Myers Squibb(BMY), and 1% inRH(RH).
Buffett cut Berkshire's stake in Apple stock by 6%. It remains the No. 1 stock in his portfolio by market value and No. 2 stock by number of shares held, at 10.6% of the portfolio. He kept an Amazon stake steady.
Warren Buffett Funds Media Deal
Berkshire Hathaway is a key backer in a deal disclosed Sept. 24 that will see TV station ownerE.W. Scripps(SSP) purchase privately held cable network ION Media for $2.65 billion. The latter firm's flagship, ION Television, is a top 5-ranked U.S. general entertainment network.
Warren Buffett's firm is snapping up $600 million of Scripps preferred shares to help fund the deal. Scripps stock surged on on the news.
Berkshire will also receive a warrant that allows it to snap up up to 23.1 million more shares at a price of $13. This adds up to an additional investment of $300 million. Scripps' common shares, however, currently trade below 11 each.
Berkshire Hathaway Coronavirus Exposure
As well as its status as an investment vehicle, Berkshire Hathaway is a conglomerate in its own right. It has interests in segments such as railroads, utilities and energy.
Those sectors, along with other "real economy" companies that are Warren Buffett staples, have been hard hit by the coronavirus shutdowns and massive economic contraction. However they should benefit as the economy opens up again.
Berkshire owns Geico, the No. 2 U.S. auto insurer after State Farm. Currently, states such as California are ordering insurers to give partial credits or refunds of premiums in lines such as private passenger automobile insurance.
Railroads Not Immune
Berkshire also owns BNSF Railway Company, the largest freight railroad network in North America. Rail operators such asUnion Pacific(UNP) andCSX(CSX) have seen business suffer during the pandemic. But rail operators and other transportation companies are seeing business pick up again.
Other wholly owned businesses such as Dairy Queen and multilevel marketing company Pampered Chef also struggled during coronavirus restrictions, though those are easing.
Warren Buffett's Big Gas Bill
Warren Buffett has been criticized for the size of his cash pile. But last July he madehis biggest acquisition in yearswith a $10 billion deal forDominion Energy's (D) assets.
Berkshire seized the chance to secure Dominion's gas pipeline network after the utility giant andDuke Energy(DUK) unexpectedly aborted plans to build the Atlantic Coast Pipeline.
Berkshire Hathaway Energy will buy about 7,700 miles of natural gas transmission pipelines and 900 billion cubic feet of gas storage. The all-cash deal includes $4 billion of equity and $5.7 billion of debt. It's set to close in the fourth quarter.
"We are very proud to be adding such a great portfolio of natural gas assets to our already strong energy business," Buffett said in a statement.
Energy has been doing well so far in 2021. For example, the Vanguard Energy ETF (VDE) is up 39% since the start of the year.
Berkshire Hathaway Stock Technical Analysis
Amid the coronavirus-related stock market pullback, Berkshire Hathaway stock plummeted. MarketSmith analysis showsit has recovered from its woes, and recently broke out of anew flat base. While it managed to clear its buy zone, it is now sinking back towards it. Theideal buy pointwas 235.09.
The flat base is one of the few reliable patterns that quality stocks form before they make substantial price advances. Bolstering the new base's case is the fact it is a first-stage pattern. IBD research showsearly stage bases have a higher chance of success.
Before rallying back into buy zone, BRKB stock fell below its50-day moving average. The fact it is falling back towards this key technical benchmark is a concern.
Therelative strength lineof Berkshire Hathaway stock had been showing some promise, but has been declining again of late. It remains shy of 12 month highs. The RS line, the blue line in the charts provided, tracks a stock's performance vs. the S&P 500 index.
BRKB stock is outperforming in 2021. So far this year it is up 7%, which beats the broader S&P 500's return of 4.1%.
ItsIBD Composite Ratingnow sits at 45 out of 99, which is still far from ideal. This puts it in the bottom 45% of stocks tracked.
TheStock Checkup Toolshows earnings have growth rate by an average of 13% over the past three years, which is not ideal. Earnings ultimately drive stock performance.
The CAN SLIM systemrecommends investors look for companies with average EPS growth of at least 25% over this time period.
Wall Street is becoming more optimistic for Berkshire Hathaway earnings growth going forward. Analysts are projecting annual earnings will rise 18% 2021, and by 10% in 2022.
Warren Buffett Recommendation
Berkshire stock has lagged the S&P 500 index since the end of 2018. Before that, BRKB stock at best moved with the market for a decade. An investor could have bought an index fund or ETF like the SPDR S&P 500 ETF (SPY), and generated similar or higher returns with less stock-specific risk.
"In my view, for most people, the best thing to do is owning the S&P 500 index fund, Buffett himself previously said at a Berkshire annual meeting. "If you bet on America and sustain that position for decades, you'd do far better than buying Treasury securities, or far better than following people. Perhaps with a bias, I don't believe anyone knows what the market is going to do tomorrow, next week, next month, next year."
But given how BRKB stock is outperforming the S&P 500 so far this year, it could finally be set for a period of outperformance.
Berkshire Hathaway Earnings Improve
The firm's famed $281.2 billion stock portfolio helped lift Berkshire's net income 23% to $35.8 billion in Q4.
Excluding some of the investments, operating earnings rose to $5 billion from $4.4 billion a year ago.
BRKB earnings per share powered back following the two previous quarters of decline, coming in above analyst views. They rose 19% to $2.15.
Buffett's Cash Mountain Still Mighty
Berkshire's cash pile dipped to $138.3 billion in Q4 from $145.7 billion in Q3. Still, in recent years the amount of available funds had swelled to record levels, raising expectations that Buffett would make a big acquisition.
Having such a large supply of cash protects the Warren Buffett stock during tough times. It also mean Berkshire Hathaway is able to deploy capital when desirable businesses become available for purchase.
The more aggressive buying of Berkshire's own shares last year contrasts with Buffett's deals during and after the Great Recession, indicating that the latest economic downturn and recovery, so far, offer none of the bargains he has historically pounced on.
Analyst Backs Berkshire Stock
UBS analyst Brian Meredith is rating BRKB stock as a buy with a 272 target.
"Our estimates assume the economy reopens in 2Q21 which will provide a tailwind for BNSF and the Manufacturing, Services and Retail businesses," he said in a note to clients.
Meredith increased his expectation for share buybacks to $4.5 billion in the first quarter, and to $8 billion for the full year. However he said this could "prove overly conservative."
Buybacks will help drive the price of Berkshire stock higher.
Difference Between BRKA Stock And BRKB Stock
The most obvious difference between Berkshire Hathaway's A class and B class shares is the price. While — at over 200 a share — BRKB stock may be considered relatively expensive, BRKA stock is the most expensive on the market, currently trading near $350,000 a share.
Warren Buffett decided to introduce the BRKB shares to allow investors to purchase stock directly. Big demand for Berkshire Hathaway stock forced less-moneyed players to plow cash into unit trusts or mutual funds that mirrored his company's holdings.
Berkshire Hathaway Today
Berkshire Hathaway operates in four main sectors.
Its insurance group is one of its biggest cash cows. One of the most famous jewels in the crown is Geico. Other parts of this business include multinational property/casualty and life/health reinsurance company General Re and Berkshire Hathaway Reinsurance Group. The latter underwrites excess-of-loss reinsurance and quota-share coverage globally.
Insurance operations are a big reason why Berkshire Hathaway earnings can be lumpy.
Its Regulated Utility Business group includes Berkshire Hathaway Energy, formerly known as MidAmerican Energy. It also includes railway services arm BNSF, North America's largest freight railroad network.
Meanwhile, the Manufacturing, Service & Retailing group includes Acme Building Brands, Fruit of the Loom and Justin Brands. The likes of Buffalo News, Business Wire, Dairy Queen and NetJets fall under the service subsector. Retailers include See's Candies, Ben Bridge Jeweler, Helzberg Diamond Shops and Star Furniture.
Finally, the Finance & Financial Products segment includes: Hathaway Credit Corporation, transportation equipment and furniture leasing specialists XTRA and CORT, and BH Finance whose main interest is in proprietary investing strategies.
Berkshire Hathaway Stock Is Not A Buy, For Now
While Berkshire Hathaway stock has been lagging the S&P 500 index since late 2018, it has started to find some performance. But it has been slipping again of late, even though Berkshire stock is still clear of a buy zone.
In 2020, BRKB stock's gains lagged the broader S&P 500, but it is beating this benchmark so far in 2021. Nevertheless, its poor Composite Rating underlines the fact overall performance is not ideal.
After a late-2018 burst, Berkshire Hathaway earnings growth has been modest and uneven. But Wall Street sees solid EPS growth ahead for Berkshire in 2021 and 2022.
Bottom line: Berkshire Hathaway stock is not a buy at the moment. Those interested in buying the ultimate Warren Buffett could add it to their watchlist, and watch to see if its performance continues to improve.
Someone looking for true market leaders should check out IBD Stock Lists, including the IBD 50 list of top-performing stocks.