Warren Buffett’s Berkshire Hathaway Stock: Buy, Sell, or Hold?

Warren Buffett’s Berkshire Hathaway (NYSE: BRK.A, NYSE: BRK.B) is widely regarded as a dependable choice for conservative, long-term investors. Led by Warren Buffett, who famously stated that his preferred holding period for a stock is "forever," the conglomerate has a reputation for stability.

Berkshire Hathaway owns a diverse portfolio of businesses, including insurance, railroads, utilities, and consumer staples, and it holds substantial stakes in numerous blue-chip companies within its closely followed investment portfolio.

Performance of Berkshire Hathaway's stock these years

Over the past five years, Berkshire Hathaway's stock has rallied more than 120% as the S&P 500 advanced 100%. Let's see why Buffett's company outperformed the market -- and if it's the right time to buy, sell, or hold the stock.
Here’s a look at its performance:
1. 2020-2021: During the COVID-19 pandemic, Berkshire Hathaway experienced some volatility, like many companies, due to market uncertainty. However, the company’s defensive businesses, such as insurance and utilities, helped it recover quickly. In 2021, Berkshire outperformed the S&P 500 with BRK.B shares rising nearly 30% by the end of the year.

2. 2022: Despite a challenging year for the stock market, Berkshire Hathaway’s stock performed relatively well, with BRK.B rising around 4% in contrast to the broader market’s decline. Warren Buffett’s conservative and value-oriented approach, along with significant cash reserves, helped mitigate the impact of inflation and market downturns. The company also benefited from its energy and utility investments.

3. 2023: Berkshire Hathaway continued to deliver solid results, with its stock price rising steadily. By the end of 2023, BRK.B had increased by approximately 13%. The company’s insurance business, investment gains, and ongoing share buybacks contributed to its strong performance. Buffett’s investments in companies like Apple also helped drive growth, as did the strength in its railroad and energy divisions.

4. 2024: As of mid-2024, Berkshire Hathaway stock remains a strong performer, with modest gains. The company continues to generate robust earnings, thanks to its diverse portfolio and investments in well-established companies. However, macroeconomic challenges such as rising interest rates and inflation have tempered growth somewhat, but Berkshire’s focus on long-term value continues to make it attractive to investors.

Understanding Berkshire Hathaway's Business

Warren Buffett's investment fund took control of Berkshire Hathaway, a struggling textile manufacturer, in 1965. Under Buffett's leadership, Berkshire was transformed by shutting down its textile operations and rebuilding its foundation. This was achieved by acquiring major companies in the insurance and energy sectors, while also expanding into a diverse range of industries. Today, Berkshire directly owns well-known brands such as GEICO, BNSF Railway, Dairy Queen, Fruit of the Loom, Duracell, Acme Brick, and See's Candies.

Berkshire utilizes the cash generated by these reliable subsidiaries to fuel its expansive investment portfolio, which is now valued at nearly $314 billion. The portfolio includes significant stakes in major companies like Apple, American Express, Bank of America, and Coca-Cola.

Rather than reporting its earnings per share (EPS) under generally accepted accounting principles (GAAP), Berkshire focuses on its "operating earnings." This is a customized metric that excludes capital gains and losses from its investment portfolio, with the aim of minimizing the impact of short-term market volatility.

Between 2018 and 2023, Berkshire achieved a compound annual growth rate (CAGR) of 7% in operating earnings, rising from $24.8 billion to $37.4 billion. This steady growth occurred despite challenges like the pandemic, inflation, rising interest rates, and geopolitical tensions. In 2023, operating earnings surged by 21%, driven by strong performance in its insurance underwriting and investment businesses, which countered macroeconomic pressures affecting its other sectors.

Reasons to Buy or Hold Berkshire Hathaway Stock

Bulls are drawn to Berkshire Hathaway for several reasons. The company is built on a foundation of enduring "evergreen" businesses, is highly diversified, and its investments are still directly managed by Warren Buffett. While past performance is no guarantee of future returns, Berkshire's stock has consistently outperformed the S&P 500 over the last six decades.

In recent years, Berkshire has been pruning its portfolio and accumulating cash as lower interest rates pushed the S&P 500 to record highs. Over the past year, it reduced its holdings in major investments like Apple and Bank of America. By the second quarter of 2024, its cash, cash equivalents, and short-term Treasury bills reached a record $271.5 billion. This growing cash reserve suggests that Berkshire is well-positioned to make significant investments if the market experiences a downturn.

With a market capitalization of $982 billion, Berkshire is currently trading at only 3.6 times its cash reserves and 3.1 times the total value of its investment portfolio. These reasonable valuations may limit the stock's downside even in a weaker market.

Reasons to Sell Berkshire Hathaway Stock

On the other hand, bears are concerned about Berkshire’s future, especially with Warren Buffett’s eventual departure. At 94 years old, Buffett plans to pass leadership to Greg Abel, chairman and CEO of Berkshire Energy, in the near future. While Abel is expected to take over, there is uncertainty about whether he can maintain Berkshire's growth trajectory or make the same sharp investment decisions as Buffett. If Abel fails to effectively manage or "over-diversifies" Berkshire’s businesses, its growth could stagnate.

Additionally, declining interest rates could negatively impact Berkshire’s core insurance businesses, as lower rates tend to reduce the profitability of fixed-income investments. Ajit Jain, who has led Berkshire’s insurance division for nearly 40 years, recently sold more than half of his shares, adding to concerns.

Furthermore, the stock is not cheap based on its trailing operating earnings. At its current valuation, Berkshire trades at 26 times last year’s operating earnings, up from 21 times its 2018 earnings.

Should You Buy, Hold, or Sell Berkshire Stock?

Despite these valid concerns, Berkshire remains an attractive buy-and-hold stock for three key reasons: it is well-diversified, it has a significant cash reserve for new investments, and Greg Abel is likely to follow Buffett’s investment strategies closely rather than introducing drastic changes.

Although the stock could experience short-term volatility, selling now may mean missing out on substantial gains over the coming years.

When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.