Warren Buffett’s Berkshire Hathaway (BRK.B) shares are fresh off a quick correction.
Berkshire stock had vastly outperformed the S&P 500 up until the correction. Now, it’s just a few percentage points away from matching the index. Though investors weren’t big fans of Berkshire’s latest round of results, I still think that the market is discounting Warren Buffett’s ability to generate alpha with his recent buys on the dip.
Buffett had nothing to show for the 2020 stock market crash. This time around, though, the man is making up with lost time, deploying considerable sums of capital on stocks he views as cheap. Simply put, Buffett is on a buying spree, and his buying activity may yet to be over.
Though Buffett doesn’t know when the market will bottom, he does see value out there, and he’s not afraid to make a big splash.
Despite the big bets, Buffett still has considerable buying power to conduct even more big buys over the year ahead. I’m bullish on the stock.
Buffett’s Buying Spree
Buffett has bet big on big oil stocks, also topping up his stake in Apple (AAPL) by $600 million in its latest dip. Buffett confidently stated that he would have probably bought more had Apple stock rebounded.
Buffett also shined a light on his upped stake in Activision Blizzard (ATVI). This wasn’t Buffett’s first merger arbitrage move, but it could prove one of the most profitable if Microsoft (MSFT) does end up acquiring the firm in a deal that will reward ATVI shareholders with $95 per share.
In essence, buying ATVI may be a win-win bet for those willing to pay around $60 or so (where shares could fall if Microsoft can’t acquire the firm) for the video-game behemoth. Clearly, Buffett is a believer in Activision’s top boss Bobby Kotick.
I think Buffett will continue buying as long as the markets continue to sag over worries of higher rates. If the man sees value, he’ll act, regardless of what others think will happen in the macroeconomic environment. It’s as simple as that.
The man follows his own words of wisdom, but he’s still keeping plenty of cash on the sidelines because he knows he won’t catch the market bottom.
Still, holding cash will leave you feeling the hit of inflation, which will, as Buffett put it, continue “swindling” savers and investors.
Despite Berkshire’s buying activity, there’s no shortage of cash on the balance sheet. Arguably, an S&P 500 drop into bear market would bode better for Berkshire over the long run, as it finds more opportunities to deploy its still massive cash hoard.
Berkshire Hathaway’s Results Were Decent
For the first quarter, Berkshire clocked in some decent, albeit somewhat muted, results. Operating revenue came in at just shy of 10%. Not terrible, but not enough to fuel a rally.
It was the company’s deployment of nearly $42 billion to buy stocks that should have investors giving Berkshire shares the benefit of the doubt.
If markets continue to sink, I expect Berkshire will continue putting money to work. For believers in Buffett and his team, the recent correction in shares on the back of Q1 results ought to be viewed as intriguing.
Inflation is working its insidious impact on Berkshire’s businesses. Still, one has to view Berkshire’s family of businesses as having better pricing power than your average corporation.
Indeed, Buffett knows that strong brands and great services can dodge and weave through the effects of inflation.
Wall Street’s Take
According to TipRanks, BRK.B stock comes in as a Hold. Out of four analyst ratings, there is one Buy recommendation and three Hold recommendations.
The average Berkshire Hathaway price target is $359.67, implying 12.8% upside potential. Analyst price targets range from a low of $351 per share to a high of $373 per share.
Bottom Line on Berkshire Hathaway Stock
Berkshire didn’t knock one out of the ballpark in Q1. Still, it reported strong results, given the circumstances. Further, Berkshire’s buying activity and the resilience of its businesses should allow the stock to continue outperforming the S&P 500 through another challenging 18 months.
If anything, I’d much rather give my savings to Buffett than hold it in the face of 7.5% inflation. Though Buffett’s market timing will not be perfect, he knows value when he sees it. With that in mind, any weakness in Berkshire Hathaway stock should not have market participants hitting the panic button.
Berkshire stock is a prudent investment in my books. Even if the S&P 500 falls into a bear market, Buffett’s relentless buying on weakness will likely power a fierce rally on the back of the next bull market.
We don’t know when the bear will die (if it even will), and how robust the rally will be. Regardless, Berkshire seems well equipped to return to its market-beating days.
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