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Berkshire Hathaway: Buffett’s Inactivity Could Be Paying Off
Stock Analysis & Ideas

Berkshire Hathaway: Buffett’s Inactivity Could Be Paying Off

Shares of Warren Buffett’s empire Berkshire Hathaway (BRK.A)(BRK.B) have been retreating of late, but far less so than the broader S&P 500 and Nasdaq 100, which are off around 10% and 16%, respectively. At writing, BRK.B shares are down a relatively modest 5%, surrendering a chunk of the gains posted since the stock’s latest rate-fuelled rally.

Indeed, Warren Buffett has been criticized by many for his lack of meaningful action through the duration of this pandemic. While the man has bought and sold securities, Berkshire may not have made the splash it could have when markets fell off a cliff back in the early innings of 2020.

Warren Buffett’s Firm Has Been Less than Exciting through the Pandemic

While Berkshire has been betting on Japanese companies and other firms with defensive characteristics (think grocers like Kroger (KR)), among other out-of-favor value bets, one can’t help but notice that the conglomerate’s cash hoard has swelled.

Last quarter, Berkshire’s cash pile grew to $149.2 billion, even after substantial share repurchases (Berkshire bought back $7.6 billion in its own stock in Q3). The cash “problem” may not actually be a problem at all, though, if better valuations are up ahead.

While Warren Buffett and company may not see much in the way of needle-moving value in the broader markets, it’s apparent that they see value in Berkshire, a potential glimmer of value in a frothy market. With the S&P 500 flirting with correction territory this January, Berkshire’s strategy of not giving into FOMO (the fear of missing out) may finally pay off, as Buffett doubters look to be silenced.

With rates creeping higher, the growth trade blew up in a horrific fashion, hitting many market newcomers inclined to chase momentum. Though Berkshire has taken the polar opposite side of the trade, sticking with deep value and relatively small bets and share repurchases, I do think that the odds could continue to turn in the Oracle of Omaha’s favor should the rotation out of high-multiple names continue.

In any case, Berkshire has more than enough dry powder on the sidelines to take advantage of any violent plunges that may arise.

For that reason, I am bullish on Berkshire Hathaway stock, not just as a value play but as a hedge against a bear market.

Waiting Patiently for the Perfect Moment

There’s no question that needle-moving acquisitions are harder these days. Not just because valuations are extended, but because of the sheer size of Berkshire. It not only needs a cheap deal but a massive, cheap deal to bolster returns.

Only time will tell if tougher times are up ahead. Regardless, Berkshire’s patience could pay off, as it has so many times in the past. As the tides turn in favor of value, Warren Buffett’s may finally get back to its old, market-beating ways.

Nothing much has changed about the man’s ability to stay patient and wait for the perfect opportunity to arise. Though he has expanded his circle of confidence, he remains value-oriented. Indeed, investors can sleep comfortably at night with Berkshire stock, even in the face of a rocky 2022 with more modest returns that many have grown accustomed to.

Wall Street’s Take

Turning to Wall Street, BRK.B stock comes in as a Moderate Buy, based on just one Buy rating.

Berkshire Hathaway’s price target is $354.00, implying an upside of 15.1%.

The Bottom Line on Berkshire Hathaway Stock

It may be too late to say that Berkshire is back to its old ways. That said, I do think the stock represents incredible value today. Otherwise, Buffett probably wouldn’t have had the firm repurchase its own shares.

Indeed, the selectivity of Berkshire’s investments shows that there are pockets of value out there for those willing to look where most others are not. For now, Berkshire seems too good to pass up at current multiples.

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