Stocks for Success Portfolio
Diversified conglomerate, Berkshire Hathaway, (BRK.B, $407, BRK.A, $611,000 per share!!) released its first quarter results last week, reporting $90 billion in revenue, up 5% YoY, compared to $85 billion a year ago. It posted a profit of $12.7 billion, or $5.20 per share, compared to $8.8 billion, or $3.69, with a beat on consensus estimates on the top and bottom lines, driven by a strong performance across its insurance underwriting and energy divisions.
Note that this isn’t the net profit, which would include the company’s investment gains and losses, which Warren Buffett has asked investors time and time again to ignore, given that these gains or losses are unrealized. When it comes to the pure operating performance of its subsidiaries, Berkshire’s insurance underwriting earnings swelled to $2.6 billion, up almost triple YoY, compared to $910 million.
The energy division similarly saw earnings double during the quarter to $720 million, up from $410 million a year ago. The company’s railroad business witnessed a slight decline in revenue, at $5.6 billion, down from $6.0 billion a year ago, owing to strikes and staffing issues that have plagued the industry for over a year. Other segments, however, point towards resilience and a resurgence in the broader US economy.
The spotlight during the quarter was Berkshire’s ever-rising cash hoard, which hit a fresh high of $190 billion, up from $168 billion the prior quarter. What an amazing number. This was the result of the company dumping $20 billion worth of stocks, and redeploying just $3 billion in fresh investments. Much of the disposal comprised of Apple stock, which has long been the conglomerate’s prized holding. The company trimmed its Apple holdings up to 13% during the quarter, and while the consumer tech giant is still its largest stock holding, this marks a major shift in strategy. This comes as Apple itself unveiled a record $110 billion stock buyback program.
By being a net seller of stock for 6 consecutive quarters and hoarding an ever-increasing pile of cash, the Oracle of Omaha has quietly hinted at his disapproval of present equity valuations. Hence, Berkshire is focused on delivering value to investors via its repurchase program, with $2.6 billion in buybacks during the quarter, made possible by its $190 billion in cash, $120 billion in debt, and $51 billion in cash flow. We expect these buybacks to increase dramatically this year.”
We believe Warren Buffett will announce a big purchase in the coming quarters. He has a legacy that will stand for all time, but one more big deal would be the way to go, as he leaves this world. Almost $200 billion in cash is burning a hole in his pocket, of that there is no doubt. Hold tight and watch. We added the stock at $208 in 2019; we have almost a double. The all-time high is listed at $430, but we can’t verify that in our research. We see it as $424 on April 4th. We aren’t going to quibble over $6. Our Target is $450 and our Sell Price is “We would not sell Berkshire Hathaway.”