FRI, FEB 10, 2023
Two reasons to like Berkshire's stock: 'Defensive' in a downturn ...
Based on its outperformance during the past three U.S. economic downturns, Berkshire Hathaway is "a defensive play in an uncertain economic outlook," according to USB analyst Brian Meredith, who continues to have a "buy" recommendation on the stock.
CNBC Pro (subscription required) quotes a Meredith note as saying:
"During the past three recessions, BRK’s shares have outperformed the market and other financials owing to its diverse business mix, very strong balance sheet, and substantial liquidity...
"Given the uncertain economic outlook in 2023, we believe BRK’s stock can outperform."
Here are the specifics:
Berkshire's insurance operations are relatively insensitive to the economy, he adds, but other units, like real estate and BNSF, are more cyclical and could be a drag on the stock.
But Meredith says that could be offset by purchases of businesses or equities at attractive prices in a recession.
... and ripe for repurchasing
Another positive for the stock, Meredith writes, is that it has dropped to a level that has triggered buybacks in the past. (The Class A shares closed at $472,250 today.)
"BRK’s shares are trading at more than a 20% discount to its intrinsic value based on the methodology outlined in BRK’s 2018 Annual Letter to Shareholders.
"This appears to be a level where BRK has historically increased its share repurchase activity."
Berkshire bought back $5.25 billion of its shares in the first three quarters of last year, which was significantly lower than the previous year's $27.1 billion. (The Q4 number has not yet been released.)
UBS is estimating $7.7 billion for this year but thinks it could go higher if the company doesn't use a lot of cash for acquisitions.
Berkshire has again sold enough shares of Chinese electric car maker BYD to drop its stake percentage by another whole number.
In a filing this week, it reveals that as of February 3, it owned 130.3 million shares, which is 11.9% of the outstanding shares.
That's a reduction of 11.3 million shares since January 27, when its stake was 12.9%. And the pace of sales is about three times faster than the previous three filings.
Since it first revealed sales last summer, Berkshire has reduced its original 225 million share 2008 purchase by a bit more than 42%.
It paid $230 million for the shares then. Today, its reduced stake is valued at just under $4 billion, according to our Berkshire Hathaway Portfolio Tracker. That takes it out of the top-ten list of most valuable holdings.
Screening Berkshire's portfolio for upside potential
(As she notes in the piece, some of the stocks were picked by portfolio managers Todd Combs and Ted Weschler, who operate independently from Buffett.)
Nu Holdings, the Brazilian fintech at the top of the list, has some room to run after it was Berkshire's second-biggest percentage loser last year with a plunge of almost 58%.
Even a big gain, however, wouldn't have much effect on the portfolio since it's a relatively small stake, currently valued at $508 million.
The second stock, however, could have a big impact. Berkshire owns about $12.8 worth of Occidental Petroleum, so if it rallies to Wall Street's average price target, that would add almost $2.8 billion to the portfolio's value.
The oil giant was Berkshire's biggest percentage winner for 2022 with a gain of more than 117%. It was also the best performing stock in the S&P 500 stock index.
But analysts think it can go even higher, and their average price target is more than 21% above its current price.
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BERKSHIRE'S TOP U.S. STOCK HOLDINGS - Feb. 10, 2023
Berkshire's top holdings of disclosed publicly-traded U.S. stocks, and BYD, by market value, based on today's closing prices.
Holdings are as of September 30, 2022 as reported in Berkshire Hathaway’s 13F filing on November 14, 2022, except for:
The full list of holdings and current market values is available from CNBC.com's Berkshire Hathaway Portfolio Tracker.
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