The Ultimate Warren Buffett Stock Is In A Buy Zone, But Should You Buy It?

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), which sits near an entry. But is Berkshire a good buy for you now? Let’s take a close look at the fundamental and technical performance of the ultimate Warren Buffett stock.

X

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 stakes in American Express (AXP), Coca-Cola (KO) and other heavy hitters.

But the definition of a Warren Buffett stock has evolved in recent years.

Under investment managers Todd Combs and Ted Weschler, Berkshire Hathaway has been increasingly sinking money into tech stocks. It’s taken large positions in established giants like Apple (AAPL), as well as younger companies like Brazilian payments provider StoneCo (STNE) and young software firm Snowflake (SNOW). Berkshire has also snapped up a stake in Amazon.com (AMZN).

Berkshire Hathaway Tweaks Portfolio, Exits TSM Stock

In Q1, Berkshire Hathaway exited its stake in Taiwan Semiconductor (TSM), the world’s largest contract chipmaker. It is a big supplier to Apple (AAPL), his firm’s top holding. In contrast, Berkshire raised its holdings of Apple stock by 2% to 915.6 million shares.

Warren Buffett also increased his firm’s holdings of Bank of America (BAC) by 2% to 1.03 billion shares. While Bank of America is the No. 1 Warren Buffett stock by number of shares, Apple is the No. 1 stock in Berkshire’s portfolio by market value.

Berkshire also grew its already sizable position in HP (HPQ)) by 15% to 120.9 million shares.

Buffett also maintained his interest in the streaming wars after keeping a position of 93.7 million shares in Paramount Global (PARA). The Paramount+ streaming service is a small but growing rival to Netflix, Disney+ and Amazon Prime.

The firm held steady on some of its biggest and oldest holdings, including American Express (AXP) and Coca-Cola (KO).

But Chevron (CVX), another big holding, was trimmed back by 18% to 132.4 million shares.

Warren Buffett Buys More OXY Stock

But Chevron is not the only way in which Berkshire has energy exposure.

In fact, the firm has been making waves as it builds an increasingly large stake in Occidental Petroleum (OXY).

Last year, it emerged that Berkshire had snapped up 91.2 million shares in oil giant Occidental Petroleum. It came as the price of oil spiked amid the Russia-Ukraine war. Berkshire bought another 5.99 million shares between Sept. 26 and 28, according to a Sept. 28 filing.

Buffett has continued to build up his stake in the Houston-based energy giant in 2023 and now holds a 24.9% stake, roughly 222 million shares. Last year, Berkshire received regulatory approval to purchase up to 50% of the oil giant.

Berkshire Snaps Up Insurer

In late October, Berkshire Hathaway completed the acquisition of insurer Alleghany.

The firm stumped up $848.02 per share in cash, which equates to a total equity value of about $11.6 billion.

Alleghany, now a wholly owned subsidiary of Berkshire Hathaway, continues to be led by CEO Joseph Brandon.

Berkshire announced it had received all regulatory approvals relating to the deal on Oct. 14, and it closed several days later.

The deal represented a multiple of 1.26 times Alleghany’s book value as of the end of December 2021. It was Berkshire’s biggest acquisition in six years.

Besides its main insurance business, Alleghany also owns a steel company and a funeral services firm.

BRKB Stock Technical Analysis

Berkshire Hathaway stock is in the buy zone above a new cup-with-handle buy point of 331.84, according to MarketSmith analysis.

BRKB stock is back above its 21-day line after previously finding support at the 50-day line.

One could view the handle as a mini-consolidation within the buy zone of a bottoming base with a 321.42 entry.

The relative strength line has been struggling to make progress after retreating from a 52-week high. This gauges a stock’s performance compared to the broader S&P 500. Its Relative Strength Rating of 81 means it has outperformed 81% of stocks in terms of price performance over the past 12 months.

Berkshire Hathaway stock held strong in 2022, making a slight gain compared to a loss of more than 19% for the S&P 500. So far in 2023, BRKB is up over 9%. The S&P 500 is up around 14%.

All-around performance is very good but not ideal. This is reflected in its IBD Composite Rating of 85 out of 99.

Earnings have grown by an average of 10% over the past three quarters. Investor’s Business Daily recommends investors look for companies with average EPS growth of at least 25% over this time period.

Wall Street expects earnings growth to slow for Berkshire Hathaway going forward. Analysts are projecting annual earnings will rise 10% in 2023 and 13% in 2024.

Big Money has been a net buyer BRKB stock of late, which is reflected in its Accumulation/Distribution Rating of B-. In total, 48% of its stock is held by funds, with a further 36% being held by management.

Warren Buffett Recommendation

Berkshire stock has struggled to outperform the S&P 500 index in recent years despite its outperformance in 2022.

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.”

Berkshire Hathaway Earnings

Berkshire Hathaway earnings jumped 14% in the most recent quarter to $3.69 per share. This was better than Wall Street expected.

Operating earnings, which is comprised of profits from its businesses, came in at $8.1 billion. This was up 12.6% year over year.

Q1 net earnings surged to to $35.5 billion from $5.58 billion a year earlier, a whopping 536% increase. This reflects an increase in the value of its investment portfolio.

Buffett says investors should focus on operating earnings, not net earnings, to get a truer reflection of the performance of the business. Berkshire stresses that stock gains and losses in any particular quarter are “usually meaningless.” This fits in with Buffett’s longer-term investment philosophy.

During the quarter, the company sold stocks worth a net $10.4 billion.

Buffett’s Cash Mountain Grows

Berkshire’s cash pile rose again in the most recent quarter. Berkshire Hathaway cash came in at $130.62 billion, up from Q4’s $128 billion.

Having such a large supply of cash protects the Warren Buffett stock during tough times. It also means Berkshire Hathaway is able to deploy capital when desirable businesses become available for purchase.

In the first quarter, the firm spent approximately $4.4 billion on share buybacks, up 57% from Q4’s $2.8 billion. This was the most since Q1 2021.

The more aggressive buying of Berkshire’s own shares of late contrasts with Buffett’s deals during and after the Great Recession. But the firm may look to make more deals if a recession starts to make attractive acquisition targets more alluring.

Analyst Rates Berkshire Stock

CFRA analyst Catherine Seifert is rating BRKB stock as a hold with a 356 price target.

“Berkshire’s premium valuation — versus the broader market and the company’s historical averages — is dependent upon its ability to produce revenue growth and operating profit margins that are superior to broader averages,” she said in a May 8 research note. “Berkshire’s recent financial results have been mixed, and we expect results at several of its economically sensitive business to be under pressure in 2023, though higher investment income will likely offset some of these strains.”

She also expects the firm to deploy its massive cash pile going forward. She said she sees “acquisitions and/or share buybacks remaining part of Berkshire’s capital allocation strategy.”

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 just over 300 per share, BRKB stock may be considered relatively expensive, BRKA stock is the most expensive on the market. It currently trading near an astounding $525,000 per 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.

Warren Buffett Names Successor

One of the biggest questions around the future of Berkshire Hathaway in recent years was who would take over the mantle of CEO from Buffett.

The Oracle of Omaha has finally given the answer. He said Greg Abel, who runs the noninsurance businesses, will take over in his stead.

Abel, a Berkshire vice chairman since 2018, had long been viewed by analysts as a possible successor. The Canadian is chairman and CEO of Berkshire Hathaway Energy. He has also been vice chairman of Berkshire’s noninsurance operations since January 2018.

The firm has not disclosed the precise timing of Berkshire’s leadership turnover.

Is Berkshire Hathaway Stock A Buy Now?

Berkshire Hathaway stock generally lagged the S&P 500 index since late 2017, but managed to handily outperform the benchmark index in 2022. But so far in 2023 it is lagging again.

Berkshire stock currently sits in a buy zone, which makes it a good option for those who have long wanted to own some BRKB due to the company’s diversified portfolio of businesses.

But while Wall Street sees solid EPS growth ahead for Berkshire for 2023 and in 2024, it still remains shy of the rates sought by CAN SLIM investors.

Bottom line: Berkshire Hathaway stock is worth buying now for those keen to add the ultimate Warren Buffett stock to their portfolio. Nevertheless, investors looking for true market leaders should also check out IBD Stock Lists, including the IBD 50 list of top-performing stocks.

YOU MIGHT ALSO LIKE:

These Are The 5 Best Stocks To Buy And Watch Now

Buffett Stocks: Who Joins Nvidia, Alibaba, Alphabet On This Screen?

Warren Buffett’s Net Worth Driven By These ‘Ironclad’ Rules

Find The Latest Stocks Hitting Buy Zones With MarketSmith

Check Out IBD’s New Investing Podcast For Exclusive Trading Tips And Market Insights