Berkshire Hathaway (BRK.B -2.13%) (BRK.A -2.66%) has been a fantastic investment over the years. The investment holding company has generated a 13.7% annualized return over the past decade. That has easily surpassed the S&P 500's 10.6% annualized return.
Warren Buffett's company is in an excellent position to continue growing value for its shareholders in the future. Here are three reasons to buy Berkshire Hathaway stock without hesitation right now.
NYSE: BRK.B
Key Data Points
A portfolio of great businesses
At its core, Berkshire Hathaway is a holding company for a diverse array of great businesses it owns outright. The company's operating businesses include insurance companies, a railroad, utilities, manufacturing businesses, service companies, and retail operations. Some of its notable brands are GEICO, BNSF, Pilot Travel Centers, Fruit of the Loom, and See's Candies.
These operating companies generate strong and growing earnings for Berkshire. Last quarter, the company produced a record $14.5 billion of operating earnings. That was up 71% compared to the year-ago period, partly because of a one-time currency gain. After adjusting for that item, its operating profit was still up more than 40% to $13.3 billion. A big driver was the improvement in the profitability of GEICO insurance.
Berkshire's strong and growing operating businesses should continue to grow shareholder value as they increase their earnings. That will give Berkshire more cash to reinvest as it sees fit, including buying more operating businesses as attractive opportunities arise.
A top-notch investment portfolio
Berkshire Hathaway also uses its retained earnings and the float from its insurance operations (i.e., money held by its insurance businesses that they haven't yet paid out in claims) to invest in high-quality publicly traded stocks. Berkshire Hathaway owns nearly 50 stocks worth almost $290 billion.
Over 70% of Berkshire's investment portfolio is in six stocks:
- Apple: 300 million shares, or 2% of its outstanding stock, worth $65.9 billion, or 23% of Berkshire's investment portfolio.
- American Express: 151.6 million shares, or 21% of its outstanding stock, worth $41.9 billion, or 14.6% of its investment portfolio.
- Bank of America: 680.2 million shares, or 8.9% of its outstanding shares, worth $29.2 billion, or 10.2% of the investment portfolio.
- Coca-Cola: 400 million shares, or 9.2% of its shares outstanding, worth $27.5 billion, or 9.6% of the investment portfolio.
- Chevron: 118.6 million shares, or 6.7% of its outstanding stock, worth $19.6 billion, or 6.8% of the investment portfolio.
- Occidental Petroleum: 264.9 million shares, or 28.2% of its outstanding stock, worth $12.8 billion, or 4.5% of the investment portfolio.
Berkshire's investment portfolio generates dividend income. It's also a source of cash, as Berkshire can sell shares if it needs to raise cash to pay insurance claims or fund the purchase of a new operating company investment. The portfolio also helps grow value for shareholders who benefit from the rising values of the stocks Berkshire owns.
A record cash pile to pounce when opportunities arise
Berkshire Hathaway generates a tremendous amount of cash from its operating businesses and its investment portfolio. The company had a staggering $334 billion of cash on its balance sheet at the end of its last quarter. That was a record cash pile for the company.
The company's cash position has been on the rise because Buffett and his team have been trimming some of their stock positions. Last year, the company sold more than $134 million in stock, largely by selling down its positions in Apple and Bank of America.
Berkshire has a massive war chest for Buffett and his team to allocate toward creating more value for shareholders. They could use that money to make a needle-moving deal to add a new operating company to its portfolio. They could capitalize on a stock market sell-off to buy more shares of high-quality companies at lower prices. They could also buy back a big chunk of Berkshire's stock if it trades at a compelling level.
A great long-term investment
Berkshire Hathaway is a wealth-creating machine. The company owns a diversified portfolio of operating companies that produce strong and growing earnings. That gives it the cash to buy new operating businesses and invest in high-quality publicly traded stocks when it sees compelling opportunities. In the meantime, cash is piling up on its balance sheet, giving Berkshire a massive war chest to pounce when the right opportunity arises. This trio of value drivers is the reason Berkshire Hathaway is a great stock to buy right now without having to worry about the future.
