The hottest megacap stock lately has been Berkshire Hathaway, which hit a record high this past week after rising almost 8% in the past month.
Berkshire is probably the ultimate defensive stock, given its diversified earnings power and fortress balance sheet, with over $350 billion in cash, or 30% of its current market value of $1.2 trillion.
So it isn't surprising that Berkshire has rallied as investors rotate out of technology and other artificial-intelligence plays into defensive groups like consumer stocks, real estate, and utilities.
Barron's has been bullish on Berkshire, but the stock doesn't look like a bargain now. The A shares traded Friday at $820,000 after overtaking the old high of about $810,000 set just before the May 2025 annual meeting. The B shares traded at $547. The stock is up 9% this year, still behind the S&P 500's 12% gain.
Berkshire trades for about 1.5 times our estimate of third-quarter book value -- the company will probably report results on Nov. 7 -- and 24 times projected 2026 operating earnings.
Those aren't excessive, but higher than the average of the past year. What about intrinsic value, Warren Buffett's favorite metric? The stock now trades above UBS analyst Brian Meredith's intrinsic value estimate of $815,000 per A share -- one of the higher estimates on Wall Street.
A key issue for Berkshire is its cash deployment. Stock buybacks accelerated in July to over $3 billion, but shares were almost 10% lower then.
Are the buybacks continuing now, given a higher price? And will CEO Greg Abel find plays to invest in? One potential area is the AI space, where capital needs are massive. Berkshire invested $10 billion as part of Alphabet's $85 billion equity capital raise in June, boosting its stake to about $30 billion. Meta Platforms could come to market with a big equity deal by year end, and Berkshire could participate.
Endowment returns are finally beating the S&P 500, and Elon Musk is the reason. Harvard University recently said its endowment rose 27.1% in its fiscal year ending in June -- outpacing the S&P's 22% total return. The endowment totaled $68 billion on June 30 -- tops among U.S. universities.
SpaceX, which went public in June after a surge in its private-market value in the prior year, was a meaningful contributor to Harvard's strong performance.
Harvard is still trailing the S&P 500 over the past nine years -- the tenure of the current endowment leadership -- with an 11.4% annual return against 15% for the index.
This year could be tougher for Harvard and its alternatives-heavy portfolio, given the fallout in AI-related stocks. Big endowments have big weightings in private equity and venture capital, but Harvard's alternative allocation is extreme. It has just 14% in public stocks, some 5% in bonds and cash, 46% in private equity and venture capital, and 29% in hedge funds.
There is risk in the stock market, but there may be even greater danger in the Harvard model.
Comments