Greggory Warren, CFA
Greggory Warren, CFA, senior stock analyst who covers Berkshire Hathaway for Morningstar, Inc., Chicago, which tracks more than 600,000 investment offerings. Morningstar.com
You might think the simplest way to benefit from Warren Buffett’s wisdom is to purchase shares in his company, Berkshire Hathaway (BRK.B). But is that thinking correct? Bottom Line Personal asked Greggory Warren, CFA, who analyzes Berkshire Hathaway for financial-services firm Morningstar…
Berkshire Hathaway stock has badly trailed the S&P index’s performance since the end of the Great Recession in mid-2009. But in the past three years, it has made a comeback with annualized gains of around 15% versus 12% for the index. And yet, even after this dramatic outperformance, Berkshire Hathaway still sells at a modest bargain. My valuation puts the stock’s fair value at $370 per share. It recently has been trading around $320 per share—about 14% less than my valuation.
What you get when you invest in Berkshire Hathaway: Partial ownership in one of the largest publicly traded firms in the US with a market capitalization of well over $650 billion. Berkshire Hathaway is a holding company for a diverse array of subsidiaries. The firm’s core business segment is insurance, including companies such as GEICO and General Re, but it also has manufacturing, service and retailing operations including Benjamin Moore, Dairy Queen and Fruit of the Loom, as well as Precision Castparts, which makes parts for the aerospace and defense industries. Berkshire Hathaway also has a $350 billion investment portfolio of such well-known companies as Apple, Bank of America and Coca-Cola.
What to expect in 2023 and beyond: The company should continue to produce slow, steady growth. Catalysts include an upturn in profits from the insurance businesses, since many insurers have been raising rates on premiums…its 2022 acquisition of property-and-casualty insurer Alleghany…and higher yields on the company’s $150 billion in cash and other fixed-income assets. If the economy falls into a recession this year, expect Berkshire Hathaway stock to be a decent defensive play that should fall less than the S&P 500.
If you invest in Berkshire Hathaway…
Keep a close eye on succession plans. Buffett turns 93 this August. His likely successor—60-year-old executive Greg Abel—has proved adept at running the company’s energy division but is still an unknown entity when it comes to making major acquisitions that can move the needle at a behemoth like Berkshire Hathaway. Former hedge fund managers Todd Combs and Ted Weschler, both of whom have worked at Berkshire Hathaway for a decade and run about 10% of the company’s investment portfolio, likely will take over the rest of it.
If you need dividend income from stocks, look elsewhere. Berkshire Hathaway does not pay a dividend, although a dividend is likely to be initiated in the post-Buffett era.
