BRK.B Safe Bet in Sticky Inflation Economy?
Tís The Week Before Thanksgiving.
Coming Thu, 28 Nov 2024 will be Thanksgiving in the US.
US stock market will be closed for this important holiday and Friday half day.
As it is the last trading week of November, Fed’s prefer inflation report - the personal consumption expenditure (PCE) will be released on Wed, 27 Nov 2024, a day before the big festive celebration.
Recap.
Before jumping headlong into US October 2024 PCE forecast, here’s a recap.
(1) US PCE - September 2024.
Headline inflation.
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Monthly : 0.3% vs 0.2% (Aug) vs 0.2% (Jul).
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Annual : 2.1% vs 2.3% (Aug) vs 2.5% (Jul). (see above)
Core Inflation.
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Monthly: 0.3% vs 0.2% (Aug) vs 0.2% (Jul).
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Annual: 2.7% vs 2.7% (Aug) vs 2.6% (Jul). (see above)
(2) Consumer Price Index - October 2024.
Headline inflation.
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Monthly : 0.2% vs 0.2% (Sep) vs 0.2% (Aug).
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Annual : 2.6% vs 2.4% (Sep) vs 2.5% (Aug). (see above)
Core Inflation.
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Monthly: 0.2% vs 0.2% (Sep) vs 0.2% (Aug).
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Annual: 3.3% vs 3.3% (Sep) vs 3.2% (Aug). (see above)
(3) Producer Price Index - October 2024.
Headline PPI.
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Monthly: 0.2% vs 0.1% (Sep) vs 0.2% (Aug).
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Annual : 2.4% vs 1.9% (Sep) vs 1.9% (Aug). (see above)
Core PPI.
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Monthly: 0.3% vs 0.2% (Sep) vs 0.3% (Aug).
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Annual: 3.1% vs 2.9% (Sep) vs 2.6 (Aug).
Why Recap of CPI and PPI ?
PCE draws its data primarily from the broader Gross Domestic Product (GDP) report, that includes details on consumer spending across various categories and incorporates price information that can be related to both CPI and PPI data.
Knowing the trends in CPI and PPI allows for a more ‘educated’ guess of what impendnig PCE could be.
US October 2024 core PCE Forecast:
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Headline PCE (MoM) : 0.2% vs 0.3% (Sep).
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Core PCE (MoM) : 0.3% vs 0.3% (Sep).
Persistent Inflation - What To Invest ?
The impact of a stubborn PCE inflation data on the US stock market depends on various factors, including
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Magnitude of the inflation.
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Market's expectations.
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US Federal Reserves’ monetary policy response.
On that note, $Berkshire Hathaway(BRK.B)$ is the stock that could potentially thrive from different scenarios above.
How So ?
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Quality Leadership: Buffett's proven track record of successful investing and long-term vision makes Berkshire Hathaway a reliable investment.
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Strong Portfolio: Berkshire Hathaway owns a diverse portfolio of high-quality businesses across various sectors, reducing overall risk.
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Value Investing Approach: Buffett's focus on value investing allows him to identify undervalued companies with strong fundamentals, potentially leading to long-term gains.
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Cash Reserves: Berkshire Hathaway holds significant cash reserves, providing flexibility to invest in opportunities during market downturns or periods of economic uncertainty. Its trailing 12 months free cash flow (FCF) stands at $21 billion, a dream number that enables endless investment opportunities.
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Insurance Business: The company's insurance business generates consistent cash flow, which can be reinvested into other businesses or used to pay dividends. And there are 3 insurance companies under the Berkshire umbrella - (a) Geico, (b) General Reinsurance Corporation (Gen Re) and (c) Berkshire Hathaway Specialty Insurance, all privately held companies.
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Inflation Hedge: Some of Berkshire Hathaway's holdings, such as infrastructure and consumer staples businesses, can benefit from inflationary environments as they can raise prices to offset increased costs.
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Real-live Investment Experience. Last but certainly not least, Mr Buffett’s 59 years of experience amassed since 1965 when he assumed the CEO role. His keen sense of doing business and more importantly his ability to accurately read and circumvent political challenges, helped Berkshire to stay on profit-course.
YTD Performance.
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YTD, Berkshire’s performance has been credible, coming in at +31.48% with room for year end ‘rally’ growth.
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It started the year on a low at $359.29 on 17 Jan 2024.
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It peaked recently at $478.57 on 4 Sep 2024 and had pullback along the way.
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All the while, trending higher and higher..
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Technically, its stock price is above its 200-day, 50-day and 20-day moving average - indicating it is still in an upwards momentum.
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With a relative strength index (RSI) at “64”, it is not in overbought territory yet.
At $476 a share, I am sure many think it's more profitable to invest in $NVIDIA Corp(NVDA)$ or $SUPER MICRO COMPUTER INC(SMCI)$ because of higher returns. This is true, but the stocks are also riskier. With BRK.B, an investor doesn't have to worry because Mr Buffett manages your investment, one can sleep “soundly” at night.
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