Many wish they could invest like Warren Buffett. Nicknamed the Oracle of Omaha, billionaire Buffett is considered one of the greatest investors of all time. If you want to invest like Buffett, perhaps the easiest way to get started is to invest in Buffett's own stock - Berkshire Hathaway (NYSE: BRK.B) stock.
BRK.B stock is up a modest 10% since January. But if you look ahead, this is one particular stock that could make you rich. Read on to find out why now could be a great time to invest in Berkshire Hathaway stock.
Berkshire Hathaway (NYSE: BRK.B) Stock News
Source: Wikipedia
Berkshire Boosts Stake in Occidental Petroleum
The company recently purchased additional shares of Occidental Petroleum. This brings Berkshire's stake in the oil company to 25%. But Berkshire says it has no immediate plans to buy Occidental outright, as it did with BNSF Railway more than a decade after amassing a 23% stake in the railroad. Occidental's business is thriving as the war in Ukraine has disrupted global oil supplies.
Berkshire Buys Gas Plant For Over $3 Billion
In a move that will expand its energy business, a Berkshire unit has agreed to buy a gas plant in Maryland from its partner Dominion Energy. The stake the Berkshire unit is buying in the gas facility is valued at $3.3 billion and will increase its holding in the business to 75%. The transaction is expected to close by the end of 2023.
Berkshire Sells BYD Shares
Berkshire recently sold nearly $90 million worth of its shares in BYD, the Chinese auto giant that competes with Tesla in the electric car business. BYD has been one of Berkshire's few foreign stock investments. Despite the recent sale, Berkshire retains a large stake in BYD stock, a company working to increase its electric car production to capitalize on the strong demand.
Berkshire Doubles Down on Japanese Stocks
The company recently increased its holdings in the stocks of the five Japanese trading companies in which it first invested in 2020. Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo are the five Japanese trading houses that won Warren Buffett's heart. They are the largest trading houses in Japan. Berkshire's stake in each of these Japanese stocks is now 8.5%, and it aims to raise it to nearly 10%.
Berkshire Hathaway (NYSE: BRK.B) Stock Overview
Berkshire Hathaway is an American conglomerate with footprints in industries ranging from insurance to manufacturing to retail. The company has a market cap of $760 billion.
It started off as a textile company in the 1930s. The company developed through multiple mergers over the years. Insurance is now its biggest business, where it offers both primary and reinsurance coverage to consumers and commercial clients.
Berkshire CEO Warren Buffett is one of the richest people in the world, with a fortune of about $120 billion, according to Bloomberg. Most of Buffett's wealth is tied to his stake in Berkshire stock.
Berkshire Hathaway's Top 5 Shareholders
BRK.B stock is a favorite of many professional investors. These are some of the largest institutional shareholders in the company:
Shareholder |
Stake |
Vanguard Group |
10.52% |
BlackRock |
5.73% |
SSgA Funds Management |
5.25% |
Geode Capital Management |
2.46% |
Bill & Melinda Gates Foundation |
1.52% |
Key Milestones in Berkshire Hathaway's History
Berkshire Hathaway's long history has been marked by several key events and milestones that continue to shape the company. These are some of the key highlights in the company's history:
Year |
Major event |
1962 |
Warren Buffett begins buying Berkshire Hathaway shares. |
1967 |
Berkshire Hathaway begins to expand into the insurance business, which Buffett now controls. |
1985 |
Berkshire Hathaway exits the textile business, closing its last operations in the industry. |
2016 |
Berkshire Hathaway makes its first investment in Apple stock. |
2020 |
Berkshire Hathaway invests in Japanese trading companies in a major international foray into Asia. |
Berkshire Hathaway's Business Model
The company runs multiple business activities through its subsidiaries. It mainly operates in insurance, manufacturing, retailing, services, energy, and transportation.
Berkshire Hathaway owns many of its subsidiaries, while others are majority-owned.
In addition to the businesses it operates directly, Berkshire Hathaway has invested in the stock of many companies that it considers to be partially owned. About 75% of Berkshire's stock portfolio is tied to Bank of America, Apple, Chevron, Coca-Cola, and American Express.
How Berkshire Hathaway Makes Money
Given its diversified operation, the company has multiple revenue sources. Here is where Berkshire's money comes from:
- Insurance premium float:Insurance policyholders pay premiums to Berkshire. The company uses the money primarily to cover claims, but there is usually leftover cash or float that it books as revenue.
- Product sales:The company generates money from product sales through its manufacturing and retail businesses. The manufacturing unit makes industrial and consumer products. The retail unit sells food, clothing, and other items.
- Service fees:Berkshire Hathaway offers a broad range of services, from rail transportation to electric power to wholesale food distribution. It makes billions of dollars from these services.
- Investment dividends:Berkshire Hathaway owns dozens of stocks in its stock portfolio. Many of these stocks pay dividends, which contribute to the company's earnings. In addition to dividends, Berkshire also generates cash by participating in share repurchases.
Berkshire Hathaway's Business Divisions
The company runs diverse business activities. Some of the businesses bring in more money than others. These are Berkshire Hathaway's main business divisions by revenue weight:
- Insurance business:Berkshire Hathaway's main insurance brand is Geico, which provides car insurance coverage. The insurance business contributes about 27% of the company's revenues.
- Manufacturing business:Berkshire Hathaway's manufacturing arm makes everything from recreational vehicles to clothing to building materials. This business contributes about 25% of the company's revenue.
- McLane company: This division deals in product wholesale distribution. It distributes everything from grocery to beverages to medicine. The McLane business contributes about 18% of Berkshire's revenues.
Berkshire Hathaway's Financials
A company's financial performance usually has the most profound impact on its stock. As a result, it helps to examine Berkshire Hathaway's financials before investing in BRK.B stock. Let's explore the company's key financial metrics:
Berkshire Hathaway's Revenue
The company's revenue rose 20% year over year to $85.5 billion in the first quarter of 2023. For the full year 2023, Wall Street expects Berkshire's revenue to rise 6% to about $320 billion. In 2022, the company's revenue rose more than 9% to $302 billion. In 2021, revenue was $176 billion, an increase of more than 12% from the previous year.
Berkshire's revenue can fluctuate from year to year due to a variety of factors, including economic conditions. For example, the swine flu pandemic negatively impacted the company's business.
Berkshire Hathaway's Operating Profit
While many investors look at the net income figures to see how profitable a company is, Berkshire advises that the operating earnings is a more accurate measure of its performance.
The company generated $44 billion in operating profit in the first quarter of 2023, up sharply from $6.6 billion in the same period last year. For the full year of 2022, the company's operating profit was $30.8 billion, which it said was a record. Unlike net income, operating profit removes the impact of equity holdings, which can fluctuate wildly over short periods of time.
For example, Berkshire reported a net loss of more than $22 billion in 2022 because of the massive unrealized losses tied to its equity investments. 2022 was a volatile year for stocks, which reduced the value of many of Berkshire's equity holdings.
Berkshire's (BRK.B) trailing 12-month return on equity is 29%.
Berkshire Hathaway's Profit Margins
The company achieved an operating margin of more than 14% in 2022. Due to the negative impact of the investment portfolio, the company's net profit margin fell to -7.55%, compared to 33% in 2021 and 17% in 2020.
Berkshire Hathaway's Cash Position and Balance Sheet Condition
The company had more than $128 billion in cash reserve at the end of 2022. The cash balance increased to more than $130 billion as of March 2023. Its balance sheet shows $997 billion in assets and only $120 billion in debt.
Berkshire Hathaway (NYSE: BRK.B) Stock Analysis
BRK.B Stock Valuation
BRK.B stock currently trades at a forward P/E of 21x, a P/B ratio of 1.51, and an EV/EBITDA of 33.90. The table below shows how Berkshire Hathaway's stock valuation compares to its peers.
BRK.B stock |
BlackRock BLK) |
Carlyle Group (CG) |
KKR & Co (KKR) |
|
Forward P/E |
21 |
19.73 |
10.82 |
16.28 |
P/B ratio |
1.51 |
2.96 |
2.04 |
3.48 |
EV/EBITDA |
33.90 |
17.45 |
16.67 |
63.42 |
As you can see from the table, Berkshire has a better price-to-earnings ratio than any of the other stocks featured. Berkshire's forward P/E, while on the high side, is largely comparable to its peers. Additionally, Berkshire has a much better EV/EBITDA ratio than KKR.
BRK.B Stock Trading Information
Berkshire's class B shares trade on the NYSE under the ticker symbol "BRK.B".
Regular trading in Berkshire Hathaway stock begins at 9.30 a.m. ET and ends at 4 p.m. However, you can begin trading the stock as early as 4 a.m. and continue trading until 8 p.m. by taking advantage of the extended trading hours in the premarket and post-market sessions.
If you're looking for actively traded stocks, this is one. More than 3.4 million shares of BRK.B exchange hands on an average trading day.
Berkshire Hathaway (BRK.B) Stock Split
Berkshire has split its BRK.B stock once since the IPO. It implemented a 50-for-1 stock split in 2010. At that time, the stock price was around $3,500. While Berkshire split its stock again? The stock is currently at about $350 and the company hasn't announced any stock split plans.
Stock splits are usually meant to accommodate retail investors and they can boost demand for a stock and cause its price to rise.
Berkshire Hathaway (BRK.B) Dividend Yield
While the company is profitable and has a massive cash balance, it doesn't pay dividends. Instead, it reinvests all the money it makes back into the business. However, the company does send money back to its investors through share repurchases.
Berkshire Hathaway (BRK.B) Stock Performance
The chart above illustrates BRK.B stock price action over the past year. As of July, BRK.B stock trades at around $350. This shows the stock has climbed more than 10% since the beginning of the year and 20% over the past year.
The stock has traded in a range of $260 to $351 over the past year, which shows that it is up 35% from its 52-week low and is trading near its 52-week high.
Factors That Impact Berkshire Stock Price
A broad range of factors can cause Berkshire stock to move up or down. Some of the factors that have the greatest impact on the stock include:
- Earnings performance:Berkshire's stock tends to rise when the company reports earnings that exceed analysts' expectations. Conversely, the stock can fall when the company reports lackluster earnings.
- Portfolio stock performance:Berkshire has a large portfolio of stocks in a variety of industries. The stock portfolio has a huge impact on the company's financial performance, which in turn impacts BRK.B stock price.
- Warren Buffett's comment:Much of the investor confidence in Berkshire stock is based on the trust people have on its top executive Warren Buffett. Consequently, Buffett's comment on the economic outlook can move BRK.B stock.
Berkshire Hathaway (BRK.B) Stock Forecast
Although BRK.B stock is currently near its 52-week high, Wall Street analysts expect the stock to go higher. The average forecast price for BRK.B stock of $384 implies an upside of 10%. The highest price target for BRK.B stock is $405, which implies an upside of 16%. Analysts have a consensus Buy rating on Berkshire stock.
Berkshire Hathaway (BRK.B) Stock Short Interest
Given Buffett's successful investment track record, not many investors are willing to bet against him. However, a small group of investors have taken the risk of betting against Buffett by shorting BRK.B stock.
About 5.6 million shares of BRK.B have been shorted, but that represents a measly 0.26% of the shares outstanding. This indicates that the market generally believes that BRK.B stock has limited downside risk.
Berkshire Hathaway (BRK.B) Stock Technical Analysis
Technical indicators can provide valuable clues as to when to enter or exit a stock. The chart below shows BRK.B stock action, along with the 20-day SMA (green line) and the 50-day SMA (yellow line).
As you can see, in an uptrend, the 20 SMA has acted as the first support level for BRK.B stock. The 50 SMA is the next support level if the first level is breached. Currently, the stock has found firm support at the 20 SMA at $343. The next support level is at $335.
Meanwhile, the stock has stormed past several resistance levels and appears poised to break the current resistance level at $351.30.
Berkshire Hathaway's Opportunities and Challenges
Berkshire Hathaway's Opportunities
If you're wondering whether Berkshire Hathaway stock is a good long-term investment, take a look at the company's growth opportunities.
- International expansion:In 2020, Berkshire surprised many by investing in several Japanese companies. There are still many foreign economies that are promising and could be ideal for Berkshire to invest in in the future.
- Technology investments:Although it owns Amazon and Apple stocks, Berkshire still has limited exposure to the technology industry. But there are many great technology companies it could invest in, especially with the AI wave.
- Insurance industry:While Berkshire is already big in the insurance business, the growth opportunity for the company is far from exhausted. The global insurance market is on track to surpass $10 trillion by 2030 from $4.5 trillion in 2021, according to Emergen Research.
- Energy industry:Berkshire still has plenty of room to expand its energy business. An expanding global population is one reason demand for energy will remain strong. The shift to renewable energy could be a boon for Berkshire's energy unit.
Berkshire Hathaway's Risks and Challenges
Berkshire is notorious for thoroughly analyzing potential risks before investing in a business or company. Despite its proactive efforts to avoid problems, the company still faces a number of challenges.
- Geopolitical problems:Berkshire said it decided to sell its stake in TSMC stock because of geopolitical issues. The company still has investments in stocks with extensive foreign exposure, posing geopolitical risks.
- Limited international footprint: Although Berkshire has tried to go into overseas markets, it still has limited international operations. It draws more than 80% of its sales from the U.S. alone.
- Over-reliance on Warren Buffett's profile:Warren Buffett is synonymous with Berkshire Hathaway. Much of the trust that customers, investors, and partners have in Berkshire is tied to Buffett's individual reputation. As a result, Buffett's exit could have an adverse impact on the business.
- Tight competition:Because of its heavily diversified operation, Berkshire faces competition from multiple fronts. These are of Berkshire's main competitors and the threats they present:
Competitor |
Threat |
AllState |
AllState competes with Berkshire in the insurance business in the U.S. Berkshire's other competitors in the insurance industry are Progressive Corp. (PGR) and Jefferies Financial Group (JEF). |
BlackRock |
BlackRock competes with Berkshire in the property management and investment business. |
Union Pacific |
Union Pacific competes with Berkshire in the freight rail business. Its other rivals in this industry are CSX Corp and Amtrak. |
NextEra Energy |
Berkshire competes with NextEra Energy in the energy production and distribution business. |
Berkshire Hathaway's Competitive Advantages
- Solid financial position:The company is highly profitable, generates strong free cash flow, and has built up a large cash reserve. It has a strong balance sheet with minimal debt. This affords Berkshire the flexibility to acquire the businesses it wants and liquidity to operate its diverse business portfolio.
- Strong brand recognition:Berkshire is among the best-known corporate brands in America and beyond. The Berkshire brand is held in high esteem and deeply trusted by partners and customers. A strong brand reputation helps Berkshire to attract more partners, clients, and investors.
- Diversified portfolio: Berkshire's portfolio spans a broad range of industries. In terms of exposure, no single business segment accounts for more than 30% of the company's revenue. As a result, the company can still make money even if some of its industries decline.
- Stable management:Berkshire is run by a highly experienced and competent management team. Berkshire chairman and CEO Warren Buffett is not only a vocal advocate of good management, but also a great investment manager himself.
Why Traders Should Consider Berkshire Hathaway Stock (BRK.B)
BRK.B stock has several attractive features for investors. One of them is that this stock has decent upside potential when you look at price forecasts. Another interesting thing is that BRK.B stock is actively traded, which makes it easy for traders to enter and exit positions.
Don't forget that Berkshire Hathaway has strong fundamentals as a company. And of course, being on Buffett's side when it comes to investing has generally proven to be rewarding.
Before investing in Berkshire stock, it helps to determine the best strategy to follow. For example, one strategy may give you shareholder voting rights but require a large upfront investment and a long wait for returns. Another method may deny you voting rights but give you the flexibility to start investing with a small amount of money and reap the rewards over a short period of time.
These are Berkshire's common stock investment strategies:
Long-Term Investment Strategy
With this investment method, you purchase Berkshire shares and hold them in your portfolio for a year or more. It is the best approach for investors seeking long-term returns. However, it requires a large initial investment and the patience to wait at least a year for returns.
Short-Term Investment Strategy
This type of investing allows you to profit from BRK.B stock over short time periods, such as an hour, a day or a week. Short-term investing can take several forms, but the most popular and potentially rewarding is Berkshire stock CFD trading. With CFD trading you can start investing for less than the cost of a single share of BRK.B stock.
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Final Thoughts
There are few stocks out there like Berkshire Hathaway (BRK.B). While this is the most affordable stock in Buffett's empire, it offers a great opportunity for investors.
You can maximize your profits by holding Berkshire shares for long-term returns and trading BRK.B CFD for short-term profits.