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Few investors can match Warren Buffett’s fame or investing prowess. However, many are eager to apply the billionaire’s value investing philosophy and emulate his long-term success in beating the market by managing their own portfolios.
There’s one stock above all others that probably deserves special consideration from Buffett fans. In fact, which company should top that list above your own? Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B)?
Today, it is one of the 10 largest companies in the world, with a market capitalization of more than $750 billion. Over the past five years, long-term investors have been rewarded with a healthy 61% gain in Berkshire Hathaway’s share price.
So let’s take a closer look at what the conglomerate does and whether investors should consider buying shares now.
Berkshire’s business model
Buffett’s holding company is engaged in activities spanning insurance and reinsurance, utilities and energy, rail freight, finance, manufacturing and retail services.
Overall, the group’s operating businesses performed well in the third quarter, largely due to strong underwriting profit growth from the insurance division. Berkshire companies’ collective profits rose 41% to $10.8 billion.
However, not everything has been a bed of roses for the company. Berkshire’s real estate businesses have suffered amid high U.S. mortgage rates and the insurance unit remains exposed to accumulating charges stemming from the wildfires that have devastated the U.S. West Coast in recent years.
Despite these challenges, it is fair to say that the operating businesses as a whole are well managed and in good health. Furthermore, arguably the main event is what Berkshire does with its cash.
The Berkshire Portfolio
Buffett’s company invests in a variety of large-cap publicly traded stocks, primarily from the U.S. stock market. Examples include Apple, Coca Colaand American Express.
In addition, the group’s investment style has been characterized over the years by acquiring large stakes in stocks that Buffett strongly supports. A good recent example of this has been the rapid accumulation of Western Oil shares, raising its stake in the oil producer to more than 25%.
Perhaps the most striking feature of Berkshire’s portfolio today is the massive $157.2 billion in cash the company has amassed. It currently holds $126.4 billion in short-term Treasury bills yielding at least 5%.
That’s higher than the current US CPI inflation rate of 3.7%. Although the actual returns on cash are not spectacular, this suggests that Buffett is saving enough dry powder for potential stock market bargains in the future.
In fact, investors should note that Berkshire stock faces the risk of volatility from its investments in the stock market. The group’s stock portfolio is not as diversified as many potential investors might imagine: 70% is concentrated in just four stocks.
Beyond Buffett
Warren Buffett has been the chairman and largest shareholder of Berkshire Hathaway since 1970. This makes him the longest-serving CEO in the world. S&P 500 by a considerable margin. She turned 93 a few months ago.
No doubt some will wonder if Berkshire’s share price could plummet following Buffett’s departure. It is a reasonable concern.
However, company veteran Greg Abel has already taken on many responsibilities. I believe he is well positioned to guide Berkshire through its post-Buffett future, as daunting as the challenge may be.
Overall, I think Berkshire Hathaway stock is worth the consideration of all Warren Buffett-inspired investors. I am also a shareholder.
