Earlier this month, the markets learned that billionaire investor Warren Buffett intends to retire as CEO of Berkshire Hathaway ($BRK.B) at the end of the year. This is important news for all investors, as Buffett has become a role model not only for investors and financially savvy market watchers, but people in general. Buffett has transcended finance to become an American cult hero, credited with assisting American industry, generating thousands of jobs, and creating wealth in multiple sectors.
His departure represents a massive change for Berkshire, specifically. After all, Buffett was arguably single-handedly responsible for transforming the company into the $1 trillion conglomerate it is today. Importantly, Buffett will only vacate his post at the end of 2025 and reiterated that he would not sell any BRK shares.
Despite the news, Berkshire’s stock remained stoutly balanced, much like most of Buffett’s investments over the past few decades. The Oracle of Omaha’s successor, Greg Abel, is arguably up to the task of filling Buffett’s shoes. Investor speculation in the interim serves as a good opportunity to pick up BRK.B stock at a time of perceived weakness. I firmly believe Mr. Abel will lead Berkshire to establish a new chapter of long-term dependability and success, making me bullish on the stock.
The Buffett Era: Decades of Market-Beating Returns
Buffett has been the face of Berkshire since the 1960s. In what he later admitted was an idiotic investment at the time, given the declining textile industry, Buffett’s initial stake in Berkshire set the foundation for his investing philosophy.
Due to Berkshire’s apparent undervaluation, Buffett gradually increased his position and became a leader. In this role, he transformed Berkshire with its modus operandi of acquiring undervalued businesses with strong fundamentals across various sectors.
To give some perspective, under Buffett’s leadership, Berkshire’s book value has compounded at an annual rate of nearly 20%, compared to S&P 500 returns of around 10% during the same time.
Buffett’s Conservative Approach to Beating the Tech Gap
As Greg Abel takes the lead, the market is now focused on how the company will navigate the evolving economic landscape. If it isn’t apparent already, technology is expected to play a major role in the coming years—it already is.
For instance, eight of the top eleven stocks by market capitalization are tech giants, with Buffett infamously missing out on two in Google (GOOGL) and Amazon (AMZN). If anyone could point out even one weakness in Buffett, it would be his conservative approach to technology investments. Buffett’s tempered approach to technology was due to his self-proclaimed lack of deep understanding in many technology-driven businesses.
Instead, Buffett focused predominantly on companies with predictable and easily analyzable models. Granted, Buffett’s stance on technology softened in recent years. This is exemplified in Berkshire’s massive Apple (AAPL) investment. Still, while Buffett’s reluctance towards technology hasn’t served as a growth hurdle in the past, the same cannot be taken for granted moving forward.
Despite his occasional failings, Buffett has been described as an “American tailwind” by market analysts and financial market commentators. In a recent book titled The American Tailwind: Warren Buffett and the History of American Resilience, the authors delve into Buffett’s uncanny track record of picking winning stocks, but also, transforming ailing industries into prosperous powerhouses.
Greg Abel Brings a Modern Perspective to Berkshire Hathaway
While Abel is no technology expert, he does bring a more contemporary perspective to Berkshire. As the Vice Chairman of Non-Insurance Operations, he oversaw many of Berkshire’s businesses. This exposed him to industries, particularly energy, which is being reshaped by technology advances, beyond Buffett’s traditional comfort zone. In this vein, investors can expect a more technology-friendly approach from Berkshire. So, this may point to more strategic investments in established and profitable technology companies with strong moats.
That being said, any major strategic shifts are unlikely. Investors can expect Buffett’s profound investment philosophies to stick. After all, Buffett will remain a key advisor and major shareholder, especially during the transition. In this light, Abel is a continued evolution of Berkshire.
Moving forward, the challenge is balancing preserving Berkshire’s core strengths, such as long-term value, margin of safety, and disciplined capital allocation, with the need to take risks in response to the changing global landscape. Fortunately for Abel, Buffett leaves behind a legacy with over $300 billion in cash and short-term investments. So, Abel will have massive firepower to make the strategic acquisitions and investments needed to ensure Berkshire remains relevant and stays abreast of the latest technology trends.
Is Berkshire Hathaway Stock a Good Buy?
On Wall Street, BRK.B stock earns a Moderate Buy rating based on two Buy, one Hold, and zero Sell ratings in the past three months. BRK.B’s average price target of $544 implies 6% upside potential in the next twelve months.
Earlier this week, UBS analyst Brian Meredith reiterated a Buy rating on BRK.B with a price target of $606. The analyst noted that “Buffett leaves a company that is less reliant on his investing capabilities, with an array of leading businesses with strong cash flows.” The analyst was also confident in Berkshire’s “structural advantages” that Buffett built and that they should persist despite the change in leadership.
A Solid BRK Fortress for Value Investors
Investors should feel comfortable with Greg Abel at the helm of Berkshire. Moreover, Abel’s leadership could bring a fresh lens to how Berkshire approaches the technology sector and allocates capital in an increasingly digital world. Importantly, Abel will still have Buffett’s ear, but most likely, he will not need it. However, if the market perceives Buffett as staying close to his baby to ensure it runs well under new management, all the better for investor sentiment.
As for Berkshire, it remains diversified to withstand macroeconomic headwinds and is strategically positioned for growth. Where will the growth originate from? Most probably, from the technology sector. In this vein, the transition from Buffett to Abel is happening at an opportune time. Berkshire’s stock remains a solid fortress for value investors, particularly during macro volatility, as evidenced by its beta of 0.56 and robust cash generation.
With substantial cash reserves, strong operational business across diverse sectors, and continued guidance from Buffett during this transition, Berkshire is well-positioned to adapt to changing market conditions while delivering value to shareholders.