While Berkshire Hathaway (NYSE:BRK.B) (NYSE:BRK.A) probably won’t win any awards for the most exciting enterprise, its shares represent a sensible option in a world of uncertainties. Featuring a broad portfolio of subsidiaries, equity positions, and other securities, Berkshire essentially plays the role of an exchange-traded fund. Such a vast footprint bodes well for the firm ahead of numerous ambiguities. Therefore, I am bullish on BRK.B stock.
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For anyone considering the multinational conglomerate, one of the best selling points centers on comparative performance relative to the benchmark S&P 500 (SPX). Indeed, the data doesn’t lie. In the trailing half-year period, BRK.B stock returned 7%. During the same period, the S&P 500 index moved up only a little above 2%.
Moreover, in the trailing year, BRK.B stock posted a modest gain of 1.1%. In sharp contrast, the S&P dropped almost 7%. Even against the trailing five-year comparison, Berkshire Hathaway pips the benchmark index — 44% versus 40%.
Notably, The New York Times mentioned in December 2022 that out of 2,132 actively managed stock or bond funds, not one outperformed the market over the last five years. Though it’s not an exact comparison, the Warren Buffett-led Berkshire has been consistently beating Mr. Market.
What’s more impressive, investors had to deal with a plethora of macroeconomic headwinds. From skyrocketing inflation that sapped consumer sentiment to the Federal Reserve responding with interest rate hikes, the pitfalls severely damaged lesser entities, and while BRK.B stock absorbed some heat, it kept the ship upright.
Better yet, moving forward, prospective investors should expect more of the same.
Smart Bets Keep BRK.B Stock in the Game
Known for his prudent approach to investing (and life in general), Buffett’s wisdom shined through during the post-pandemic new normal. What makes BRK.B stock stand out isn’t so much about the strength of the conglomerate itself. Rather, its equity portfolio allocation worked out beautifully.
In particular, Berkshire’s focus on energy – the hydrocarbon variety – paid dividends for BRK.B stock. As of the latest disclosure, the conglomerate’s third-largest equity holding is Chevron (NYSE:CVX) at 9.1%. Also, Berkshire generated headlines for increasing its stake in Occidental Petroleum (NYSE:OXY), which represents 3.7% of its holdings.
Although Buffett still believes in electric vehicles given Berkshire’s exposure to the sector – despite a reduction in his stake in Chinese EV maker BYD (BYDDY) – it’s notable that the Oracle of Omaha bet so heavily on oil and gas firms. However, the geopolitical disruption stemming from Russia’s invasion of Ukraine meant that such wagers offered a shrewd (albeit cynical) opportunity.
Moreover, Berkshire also bet on relatively boring consumer staples such as Coca-Cola (NYSE:KO) and Kraft Heinz (NASDAQ:KHC). Perhaps sensing that consumers would trade down their spending habits from high-end products to more price-competitive fare, the decision worked out quite well. For instance, KO gained 5.2% in the trailing year, while KHC delivered nearly 14.5% returns during the same period.
While these stats will not impress a cryptocurrency trader, the main point again is that Berkshire didn’t sink like the benchmark equities index did. With many challenges remaining in 2023, investors may place a premium on stability. Ultimately, this should benefit BRK.B stock.
Slow and Steady Wins the Race
To be sure, Berkshire’s broad bets limit the true upside potential of BRK.B stock. With so many wagers, the losers can end up dragging down the winners. However, for those seeking a dependable anchor ahead of an incoming storm, Berkshire’s slow-and-steady approach should win out.
For instance, prospective investors won’t get a great deal on BRK.B stock. Currently, the market prices shares at forward earnings multiple of 21. In contrast, the sector median sits at 10 times. As well, Berkshire’s strength in the balance sheet is rather middling. Though the company’s equity-to-asset ratio pings at 0.51 times (ranking better than 87% of the competition), it also features a high debt load relative to cash.
Nevertheless, at a time when enterprises are starved for growth, Berkshire provides plenty of it. Presently, its three-year revenue growth rate stands at 19.7%, above 81% of its rivals. So, while BRK.B stock won’t necessarily spark fireworks, it should ride out any turbulence.
Is BRK.B Stock a Buy, According to Analysts?
Turning to Wall Street, BRK.B stock has just one rating assigned to it in the past three months, and it’s a Hold. BRK.B stock’s price target is $325.00, implying 4.5% upside potential.
The Takeaway: BRK.B Stock Eschews Prominence for Prudence
Admittedly, BRK.B stock will probably never win awards for outright blistering performance. Instead, the goal here centers on stability. Through a prudent approach to all market conditions, Berkshire carefully crafted a winning portfolio – one that consistently beat the market.
