Is It Wise to Purchase Berkshire Hathaway Shares with the Current Price Under $500?
Slimming Down Buffett's Empire: Berkshire Hathaway, once synonymous with legendary investor Warren Buffett, now faces an uncertain future as he steps down as CEO. While Greg Abel, his chosen successor, aims to maintain Berkshire's culture, markets are jittery about how the company will change under its new leader. Let's take a closer look at the state of Berkshire Hathaway post-Abel and if it's smart to leap on the dip.
life After the Oracle of Omaha
Warren's retirement may not mark the end of an era, as he plans to remain as the chairman of the board. Greg Abel has promised to preserve the investment philosophy that Buffett has cultivated for decades. "It ain't gonna change," Abel reassured shareholders at the annual meeting.
However, Abel hinted at a more hands-on approach than Buffett, known for his laid-back style and patient investing. This new strategy could breathe fresh air into Berkshire's long-time holdings, which have been underperforming. Yet, it might also deter private companies from selling themselves to Berkshire, as hands-on management might put the independent streak of subsidiaries at risk.
What's Up With Berkshire's Wallet?
Abel has been tight-lipped about his investment philosophy, but one thing's for sure: he'll have to address Berkshire's massive cash pile, almost $350 billion as of March 2022. Berkshire's investment approach may not undergo drastic changes, but Abel might bring a more proactive approach in managing the company's assets.
Is now the Time to Buy Berkshire Stock?
Valuing a conglomerate like Berkshire is no easy task, especially with its many moving parts. However, its robust earnings growth over the past couple of years suggests that the company is on solid ground. After adjusting for cash and publicly traded securities, and excluding earnings from controlled businesses like Kraft-Heinz and Occidental Petroleum, Berkshire still looks like a good deal at less than 10x its trailing operating earnings.
A Note on Price-to-Book Value
The price-to-book value multiple, currently at 1.62x, tells a different story. Historically, Berkshire repurchased shares only when the multiple was below 1.2x. However, it has become more flexible in recent years.
While Berkshire's valuation isn't particularly impressive, it's important to consider it in the context of the broader market's inflated valuations. Buffett stepping down as CEO raises doubts but the continuity of having him as chairman is a comforting thought.
I took advantage of the recent market dip to add to my existing Berkshire positions. If the stock takes a tumble, I might consider adding more. However, it's crucial to keep your expectations modest and expect Berkshire to outperform the market only modestly over the long term due to its immense size.
The Final Word on Berkshire Stock
While only six analysts cover Berkshire Hathaway, two have rated it a "Strong Buy," and four have given it a "Hold." The consensus target price is $537.75, 9.5% higher than the June 10 closing price.
Investing in Berkshire Hathaway under Greg Abel's leadership comes with its risks and opportunities. With Abel's leadership and Buffett's guidance, the company could continue to thrive in new ways while remaining true to its core values. As with any investment, thorough research and a long-term perspective are key. Good luck, fellow investors!
Mohit Oberoi holds positions in Berkshire Hathaway (BRK.B). All information is for informational purposes only, and you should consult our Disclosure Policy for more details.
Enrichment Data:Greg Abel is expected to bring a more hands-on approach to Berkshire Hathaway's leadership, a departure from Warren Buffett's more disengaged management style. Abel's approach to capital allocation, largely based on cooperation and integration within Berkshire's diverse portfolio, may evolve the company's investment strategy while maintaining its core principles.
Warren Buffett is a legendary figure in the world of finance, transforming Berkshire Hathaway from a struggling textile company to a trillion-dollar conglomerate. His focus on long-term value and independence for subsidiaries has been influential, but his retirement raises questions about Berkshire's future. Greg Abel's challenge will be to maintain the culture Buffett has established while adapting it to contemporary market conditions.
As Greg Abel prepares to take over as the new CEO of Berkshire Hathaway, he aims to maintain the investment philosophy cultivated by Warren Buffett while adopting a more hands-on approach to managing the company's assets, which might include the restructuring and selloff of underperforming long-time holdings.
After Berkshire Hathaway's massive cash pile grew to over $350 billion, the challenge for Abel will be to allocate capital efficiently while staying true to the company's core values, which have fostered its success in the finance and business sector over the years.