Berkshire Hathaway, the conglomerate led by renowned investor Warren Buffett, has seen its stock rally more than 120% over the past five years. This impressive performance has outpaced the broader market, leading investors to question whether now is the right time to buy, sell, or hold Berkshire Hathaway stock. The company owns a diverse portfolio of businesses, including well-known brands such as GEICO, BNSF Railway, Dairy Queen, and Duracell.
It also holds substantial investments in dozens of blue-chip stocks. Berkshire reports its profitability through “operating earnings,” which excludes capital gains and losses from its investment portfolio. From 2018 to 2023, the company’s operating earnings grew at a steady compound annual growth rate of 7%, reaching $37.4 billion.
Bulls favor Berkshire due to its mix of evergreen businesses and Buffett’s continued oversight of investments. The company’s consistent outperformance of the S&P 500 and its substantial cash reserves of $271.5 billion in the second quarter of 2024 suggest it is well-positioned for further gains. On the other hand, bears argue that Berkshire may face challenges after Buffett steps down and hands the reins to Greg Abel, chairman and CEO of Berkshire Energy.
There are questions about whether Abel can successfully continue Buffett’s strategy and manage the portfolio effectively. Additionally, declining interest rates could impact the company’s core insurance businesses, and the stock currently trades at a higher valuation than five years ago. Many investors believe they should still buy and hold Berkshire’s stock despite these concerns.
Berkshire’s diversified value with class shares
The company’s diversification, ample cash for new investments, and prospects under Greg Abel suggest it remains a strong long-term investment. Berkshire Hathaway offers two classes: the original Class A shares and the more affordable Class B shares introduced in the 1990s.
While Class A shares trade significantly, investors can now purchase fractional shares, making them accessible to all. The company’s valuation is often determined using the price-to-tangible-book (P/TBV) ratio, which compares its market value to its net worth. Although Berkshire’s P/TBV has been rising, the stock has traded at higher valuations in the past and remains below its average since the turn of the century.
Given Berkshire’s size, diverse businesses, and the moat built by Warren Buffett, investing in Class A shares while they trade for less than $700,000 appears prudent for those who can afford it. The company has a phenomenal track record, generating overall gains of more than 4,300,000% between 1965 and 2023, compared to the S&P 500’s 31,200%, including dividends. However, the B shares may be a more suitable option for most investors.
With a current trading price of around $450, B shares offer a more manageable entry point for those looking to invest alongside Warren Buffett without a massive capital outlay. Dedicating a large sum to a single company, even one as diversified as Berkshire Hathaway, carries risks that may not be appropriate for all investors. In conclusion, Berkshire Hathaway’s stock remains a compelling investment opportunity for long-term investors.
While the Class A shares offer prestige and potential, the B shares provide a more practical option for the average investor seeking to benefit from the company’s strong fundamentals and Warren Buffett’s investment expertise.
