Warren Buffett doesn’t like stocks as much as he used to. This is evident from the fact that he has been a net seller of shares for eight quarters in a row.
But Buffett hasn’t lost his crush yet all supplies. The ‘Oracle of Omaha’ even invested $2.9 billion in one stock this year. What is it – and is it a no-brainer purchase now?
Start your morning smarter! Wake up with Breakfast news in your inbox every market day. Register for free »
If you think $2.9 billion is a big change for Buffett, think again. Most positions in Berkshire Hathaway‘S (NYSE: BRK.A)(NYSE: BRK.B) portfolio are valued at less than that amount. Of the 15 holdings that were worth more, Buffett cut Berkshire’s stake in three stocks this year and didn’t buy shares in nine others.
Buffett has steadily added shares to Berkshire’s position in the oil and gas producer this year Western petroleum. He bought more shares of a property and casualty insurer Chubb Limited. The legendary investor also stepped up Sirius XM Holdings. (We’ll get an update on this and more when Berkshire releases its quarterly portfolio update after the market close today.)
However, none of these purchases amounted to $2.9 billion this year. There is only one stock that Buffett has invested so much money in so far in 2024: Berkshire Hathaway itself, through share buybacks.
Berkshire Hathaway posted total profits of 4,384,748% between 1964 (when Buffett took control of the company) and 2023, more than 140 times greater than the company’s profits. S&P500 during the same period. The stock has also outperformed the S&P so far in 2024. Is this track record of beating the market why Buffett has invested so heavily in Berkshire? No.
The real reason behind the continued share buybacks is revealed in Berkshire Hathaway’s quarterly and annual filings with the U.S. Securities and Exchange Commission (SEC). In its latest quarterly filing, the conglomerate reiterated the consistent message: “Berkshire’s common stock repurchase program allows Berkshire to repurchase its shares whenever Warren Buffett, Chairman of the Board and Chief Executive Officer of Berkshire, believes the repurchase price is below the intrinsic value of Berkshire is. value, determined conservatively.”
Buffett invested so heavily in Berkshire this year because he thought the price was right. No one in the world is better qualified to determine whether Berkshire’s stock price is below its intrinsic value than Buffett. He knows the company inside and out. If there’s one company for which Buffett can reasonably predict future earnings (a necessary condition for valuing the company), it’s Berkshire Hathaway.
Does this make Berkshire Hathaway a no-brainer buy for other investors at this point? Not necessarily.
For starters, all share buybacks took place in the first half of 2024. Berkshire did not buy back any shares in the third quarter. Additionally, of the $2.9 billion in share buybacks this year, $2.6 billion took place in the first quarter. Since then, Berkshire’s share price has risen more than 10%.
It appears that Buffett is no longer confident that Berkshire’s stock price is below its intrinsic value. And if Buffett isn’t confident, why should anyone else be?
That said, Berkshire Hathaway is well positioned for the long term. The insurance activities generate a stable cash flow. The energy activities have solid prospects. Berkshire’s manufacturing subsidiaries produce products that will continue to be needed.
The conglomerate’s investment portfolio is more diversified than it has been in a long time, thanks to Buffett’s reduction of Berkshire’s stakes in Apple And Bank of America. Berkshire also has cash, cash equivalents and short-term investments in U.S. Treasury securities totaling $325 billion. That’s the largest cash hoard in the company’s history. Buffett has a lot of dry powder to bet when stock prices are more attractive.
I don’t think shares of Berkshire Hathaway are a no-brainer purchase right now, especially since Buffett himself doesn’t seem to think so. Still, I nonetheless believe the stock will deliver solid gains for investors in the long term. Buffett would probably agree.
Have you ever felt like you missed the boat on buying the most successful stocks? Then you would like to hear this.
On rare occasions, our expert team of analysts provides a “Double Down” Stocks recommendation for companies they think are about to pop. If you’re worried that you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
Amazon: If you had invested $1,000 when we doubled in 2010, you would have $23,529!*
Apple: If you had invested $1,000 when we doubled in 2008, you would have $42,465!*
Netflix: If you had invested $1,000 when we doubled in 2004, you would have $441,949!*
We’re currently issuing ‘Double Down’ warnings for three incredible companies, and another opportunity like this may not happen anytime soon.
See 3 “Double Down” Stocks »
*Stock Advisor returns November 11, 2024
Bank of America is an advertising partner of Motley Fool Money. Keith Speights holds positions at Apple, Berkshire Hathaway and Chubb. The Motley Fool holds positions in and recommends Apple, Bank of America and Berkshire Hathaway. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
Warren Buffett has invested $2.9 billion in just one stock this year. Is it a no-brainer purchase? was originally published by The Motley Fool
