Berkshire Hathaway (BRK.B) stock has not done much since the spring, fluctuating in a narrow channel of consolidation below the $300 level.
Legendary investor and CEO Warren Buffett hasn’t been too active with Berkshire’s growing cash pile, leaving few if any things for shareholders to get really excited about.
Despite the lack excitement, I do view Berkshire stock as undervalued. As such, I remain bullish. (See Analysts’ Top Stocks on TipRanks)
Berkshire Stock Drags amid Market Rally
With a swelling cash pile of nearly $150 billion, Buffett seems okay with playing it safe amid the market’s continued climb. Indeed, high inflation will eat away at money not put to work in equities.
Still, the risks of waiting may be worthwhile once the right moment to strike comes along. Broader market valuations may be stretched, but it may just be a lack of meaningful bargains that has Buffett sitting mostly on the sidelines when it comes to new stock purchases.
While Berkshire has made some buys, its selling activity through the year has been more noteworthy, with Berkshire being a net seller of stocks for yet another quarter (that’s four straight). Indeed, Buffett’s moves may indicate the stock market is too expensive, or maybe he just doesn’t see as many needle-moving opportunities coming up on Berkshire’s radar.
Either way, Berkshire seems to be a fan of its own stock these days, with continued share repurchases ($7.6 billion worth as of the third quarter).
The magnitude of such share buybacks suggests Berkshire stock is considerably undervalued. Buffett is not known to buy back shares, Berkshire Hathaway included, unless he sees them as cheap.
Berkshire’s Growing Cash ‘Problem’
There has not been much to see over at Berkshire over the past few quarters. A lot of share repurchases, a growing cash hoard, and net selling activity.
Add 6.2% inflation into the equation and a lack of huge buys during the 2020 stock market crash, and the case for giving up on the “boring” stock may be at a high point.
Still, investors should continue to give Buffett and his firm the benefit of the doubt. If anything, Berkshire’s extreme prudence amid the market’s rally could come in handy once the tides do finally reverse.
Whether the next big market crash is next year or in many years down the road, Berkshire will have the resources to take advantage of a bargain. While the opportunity costs of holding cash and fixed-income assets are the highest they’ve been in recent memory, Berkshire’s liquidity will come in handy if something unforeseen such as new variants propels broader markets much lower.
Looking back at Berkshire’s moves over the past year and a half and it’s easy to conclude that Buffett and his firm may have lost their edge. Investors may want a buy dig or huge net buying activity, but they probably won’t get it until something falls within the company’s strike zone.
For prudent investors who acknowledge today’s extensive list of uncertainties, Berkshire may very well be the ultimate value investment that can hold its own once things inevitably head south once again.
At just 1.3 times book value, investors get a whole lot for their invested dollar.
Wall Street’s Take
According to TipRanks’ analyst rating consensus, BRK.B stock comes in as a Moderate Buy, based on one Buy rating.
The average Berkshire Hathaway price target is $347.
Disclosure: Joey Frenette owned shares of Berkshire Hathaway at the time of publication.
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