rtmark
LearnBonds.com

Analysts are Bearish on Berkshire Stock, Should You Too Be?

berkshire chair warren buffett

Berkshire Hathaway stock is outperforming the S&P 500 in 2022. The stock is in the green even as most major companies are in the red. The Warren Buffett-led conglomerate had outperformed the markets in 2021 also.

However, the stock underperformed badly in 2019 and 2020. After the recent outperformance, Wall Street analysts don’t seem too bullish on Berkshire Hathaway stock. Should you buy or sell the stock now?

Warren Buffett sold stocks in 2021

Berkshire Hathaway was a net seller of stocks in all four quarters in 2021. The conglomerate was a net seller of stocks in Q4 2020 as well. Since 2020, Berkshire was a net buyer of stocks only in Q1 2020 when the conglomerate’s net stock buys were a paltry $1.8 billion, and in Q3 2020 when the company net bought $4.8 billion worth of stocks. That quarter, Buffett has taken stakes in Japanese trading companies. Most of Berkshire’s investments are in the US only but the conglomerate does invest in international markets.

For instance, the conglomerate has invested in Chinese company BYD, Indian fintech startup Paytm, and Brazilian neobank NU Holdings. Buffett surprised markets when the company net sold $12.8 billion worth of stocks in the second quarter of 2020. That quarter, Buffett sold all the four airline companies that Berkshire was holding.

Berkshire has been repurchasing shares instead

Berkshire has been spending billions of dollars on share repurchases. It repurchased $6.9 billion worth of shares in Q4 2021. While it was below the $7.6 billion that it repurchased in the third quarter, it nonetheless took the 2021 repurchases to $27 billion.

It was a new record for the conglomerate, ahead of the $24.7 billion in 2020. Notably, Berkshire amended their repurchase policy in 2018 to give more discretionary powers to Buffett. Previously the company used to repurchase shares only if they were trading below 120% of its book value. Buffett places a lot of emphasis on the company’s book value which has increased significantly over years.

Warren Buffett is back in the game

For almost two years, Berkshire’s cash pile has been hovering around $150 billion. While the company has been spending generously on buybacks, it also generates a lot of free cash and earns billions in dividends every year from investee companies. Buffett has been ruing the lack of buying opportunities.

In his annual letter this year, the Oracle of Omaha said, “Today, though, we find little that excites us. That’s largely because of a truism: Long-term interest rates that are low push the prices of all productive investments upward, whether these are stocks, apartments, farms, oil wells, whatever.”

Buffett has made major investments in 2022

However, Berkshire is now back at dealmaking, something which Buffett has been historically known for. In 2022, the company has invested $23 billion. Of this, the lion’s chunk has gone to acquire Alleghany which would be the company’s biggest acquisition since Precision Castparts which Buffett acquired for $37 billion.

Berkshire has invested over $7 billion in Occidental Petroleum. The company has also announced a $4.2 billion investment in HP. The HP investment especially surprised markets as Buffett has generally stayed away from tech companies even as Apple is the largest holding for the conglomerate.

We’ll get more details on what all Berkshire bought and sold in the first quarter next month when the company files its 13F. Also, after a gap of two years, the company’s annual meeting would be held in person on April 30 where Buffett might offer some insights.

Rising rates are positive for Berkshire

Over the last few years, Buffett has been missing out on deals. Low interest rates and availability of cheap money meant that private equity firms outbid Berkshire. Now, with US interest rates on a rise, the days of cheap money seem over. Also, as the uncertainty over the COVID-19 pandemic has subsided, Buffett seems comfortable with big deals.

“With the pandemic now under control, he is undoubtedly seeking investment opportunities that satisfy his standards of low risk and high expected rate of return,” said David Kass, a finance professor at the University of Maryland’s Robert H. Smith School of Business.

Kass added, “The recent declines in the stock market resulting from the anticipated tightening of monetary policy by the Federal Reserve may provide additional attractive opportunities for Buffett in the near future.”

Wall Street is not too bullish on Berkshire stock

While Berkshire is among the top 10 US companies by market cap and holds more property plant and equipment on its balance sheet than any other US company, it is covered only by a handful of analysts, seven to be precise. Of these, six rate the stock as a hold or some equivalent and only UBS has a buy rating with $364 target price which is a premium of just about 9%.

There are multiple reasons why not many analysts cover Berkshire. Buffett hasn’t had kind words for analysts and the company does not engage with the community like fellow US companies. Also, there is a lack of granularity in the various business that Berkshire holds. Even Bill Ackman, who eventually sold his stake in Berkshire Hathaway, called it the “misunderstood” business.

Also, unlike other companies which also have an investment banking relationship with the brokerages, Buffett does dealmaking on his own without involving investment banks. Overall, the disdain between Berkshire and the analyst community is mutual.

Edward Jones downgraded the stock

Edward Jones analyst James Shanahan downgraded Berkshire stock earlier this month. He said, “the stock has done really well partly due to the perception that Berkshire is more or less a safe haven.” Shanahan added, “It’s a company that has 85% of its revenue from the U.S., so it’s largely insulated even if you were to project the potential for an European recession.” He said that it was a “valuation call” after the significant outperformance.

Should you bet on Buffett?

While analysts might be apprehensive about Berkshire stock after the recent outperformance, the stock is still underperforming the markets when we look at a four-to-five-year perspective. There might still be some catching up in the stock especially as rising rates increase the pivot towards value stocks. As Buffett starts putting the company’s massive cash pile to work, the stock might see even better days ahead.

Berkshire can be a core part of your portfolio

Berkshire is among the stocks which can be a core part of your portfolio. The stock can beat S&P 500 over a long period even as there would be times like 2019 and 2020 when it would significantly underperform.

You can buy Berkshire stock through any of the best online stockbrokers. Alternatively, if you wish to trade derivatives, we also have reviewed a list of derivative brokers you can consider.

Trusted & Regulated Stock & CFD Brokers

Rating

What we like

  • 0% Fees on Stocks
  • 5000+ Stocks, ETFs and other Markets
  • Accepts Paypal Deposits

Min Deposit

$200

Charge per Trade

Zero Commission on real stocks

Rating

64 traders signed up today

Visit Now

67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

Available Assets

  • Total Number of Stocks & Shares5000+
  • US Stocks
  • German Stocks
  • UK Stocks
  • European
  • ETF Stocks
  • IPO
  • Funds
  • Bonds
  • Options
  • Futures
  • CFDs
  • Crypto

Charge per Trade

  • FTSE 100 Zero Commission
  • NASDAQ Zero Commission
  • DAX Zero Commission
  • Facebook Zero Commission
  • Alphabet Zero Commission
  • Tesla Zero Commission
  • Apple Zero Commission
  • Microsoft Zero Commission

Deposit Method

  • Wire Transfer
  • Credit Cards
  • Bank Account
  • Paypall
  • Skrill
  • Neteller

Rating

What we like

  • Sign up today and get $5 free
  • Fractals Available
  • Paypal Available

Min Deposit

$0

Charge per Trade

$1 to $9 PCM

Rating

Visit Now

Investing in financial markets carries risk, you have the potential to lose your total investment.

Available Assets

  • Total Number of Shares999
  • US Stocks
  • German Stocks
  • UK Stocks
  • European Stocks
  • EFTs
  • IPOs
  • Funds
  • Bonds
  • Options
  • Futures
  • CFDs
  • Crypto

Charge per Trade

  • FTSE 100 $1 - $9 per month
  • NASDAQ $1 - $9 per month
  • DAX $1 - $9 per month
  • Facebook $1 - $9 per month
  • Alphabet $1 - $9 per month
  • Telsa $1 - $9 per month
  • Apple $1 - $9 per month
  • Microsoft $1 - $9 per month

Deposit Method

  • Wire Transfer
  • Credit Cards
  • Bank Account
Users should remember that all trading carries risks and users should only invest in regulated firms. Views expressed are those of the writers only. Past performance is no guarantee of future results. The opinions expressed in this Site do not constitute investment advice and independent financial advice should be sought where appropriate. This website is free for you to use but we may receive commission from the companies we feature on this site.

Mohit Oberoi is a freelance finance writer based in India. he has completed his MBA with finance as majors and also holds a CFA charter. He has over 13 years of experience in financial markets. He has been writing extensively on global markets for the last six years and has written over 6,500 articles. He mainly covers metals, electric vehicles, asset managers, and other macroeconomic news. He also loves writing on personal finance and topics related to valuation.