Warren Buffett Buys More OXY Stock
But Chevron is not the only way in which Berkshire has energy exposure.
In fact, the firm has been making waves as it builds an increasingly large stake in Occidental Petroleum (OXY).
Last year, it emerged that Berkshire had snapped up 91.2 million shares in the oil giant. It came as the price of oil spiked amid the Russia-Ukraine war. Berkshire bought another 5.99 million shares of Occidental Petroleum this year between Sept. 26 and 28, according to a Sept. 28 filing.
Buffett has continued to build up his stake in the Houston-based energy giant in 2023, in the most recent quarter buying another 12.4 million shares, which increased the size of the position by a further 5.9%. Last year, Berkshire received regulatory approval to purchase up to 50% of the oil giant.
Buffett Bets Big On LNG
Warren Buffett now has even more energy exposure after it emerged July 10 that Berkshire has agreed to a $3.3 billion deal to buy Dominion Energy's (D) share of the Maryland-based Cove Point LNG export plant.
This will bring Berkshire Hathaway Energy's share in the LNG export facility to 75%. Brookfield Asset Management (BAM) owns the other 25%.
"We are proud of our operations at Cove Point and are excited for this opportunity to increase our ownership in these world-class facilities," Berkshire Hathaway Energy Gas Transmission and Storage President Paul Ruppert said in a statement.
Morgan Stanley analyst David Arcaro wrote in a note to clients that the deal was around $1 billion less than the firm expected. Dominion Energy will use the $3 billion from the deal to pay off debt.
Berkshire Snaps Up Insurer
In October last year, Berkshire Hathaway completed the acquisition of insurer Alleghany.
The firm paid $848.02 per share in cash, which equates to a total equity value of about $11.6 billion.
Alleghany, now a wholly owned subsidiary of Berkshire Hathaway, continues to be led by CEO Joseph Brandon.
Berkshire announced it had received all regulatory approvals relating to the deal on Oct. 14, and it closed several days later.
The deal represented a multiple of 1.26 times Alleghany's book value as of the end of December 2021. It was Berkshire's biggest acquisition in six years.
Besides its main insurance business, Alleghany also owns a steel company and a funeral services firm.
BRKB Stock Technical Analysis
Berkshire Hathaway stock has formed a new flat base with an ideal entry point of 373.74 according to MarketSmith analysis.
BRKB has fallen below its 50-day moving average, which is a sell signal. The key benchmark is currently acting as an area of resistance.
Back in September it reached record highs after getting extended from a cup-with-handle buy point of 331.84.
Berkshire Hathaway stock held strong in 2022, making a slight gain compared to a loss of more than 19% for the S&P 500. So far in 2023, BRKB is up about 12%. This lags the S&P 500's gain of over 14%.
All-around performance is very good for Berkshire Hathaway stock, which is reflected in its IBD Composite Rating of 91 out of 99.
Earnings have grown by an average 22% over the past three quarters. Investor's Business Daily recommends investors look for companies with average EPS growth of at least 25% over this time period.
Wall Street expects year-over-year earnings growth to slow for Berkshire Hathaway. Full-year earnings popped 16.3% in 2022 to $14.09. Analysts are projecting annual earnings will rise 23% in 2023 but dip to 3% growth in 2024.
Big Money has been a net seller of BRKB stock of late, which is reflected in its Accumulation/Distribution Rating of D+. In total, 48% of its stock is held by funds, with a further 36% being held by management.
Warren Buffett Recommendation
Berkshire stock has struggled to outperform the S&P 500 index in recent years despite its outperformance in 2022.
Before that, BRKB stock at best moved with the market for a decade. An investor could have bought an index fund or ETF, like the SPDR S&P 500 ETF (SPY), and generated similar or higher returns with less stock-specific risk.
"In my view, for most people, the best thing to do is owning the S&P 500 index fund," Buffett himself previously said at a Berkshire annual meeting. "If you bet on America and sustain that position for decades, you'd do far better than buying Treasury securities, or far better than following people. Perhaps with a bias, I don't believe anyone knows what the market is going to do tomorrow, next week, next month, next year."
Berkshire Hathaway Earnings
Berkshire Hathaway's third-quarter earnings per share rose 43% to $4.96 as revenue jumped 21% to $93.2 billion. Analysts had expected Berkshire earnings to rise vs. a year earlier to $4.74 a share.
Berkshire Hathaway also saw its third-quarter operating profit jump 41% to $10.8 billion.
Buffett says investors should focus on operating earnings, not net earnings, to get a truer reflection of the performance of the business. Berkshire stresses that stock gains and losses in any particular quarter are "usually meaningless." This fits in with Buffett's longer-term investment philosophy.
The firm once again reduced its equity holdings, selling a net $5 billion in Q3. This brought its total year-to-date equity sales to about $23 billion.
Warren Buffett Cash Mountain Hits Record Levels
Berkshire's cash pile rose to record levels in the most recent quarter. Berkshire Hathaway cash came in at gargantuan $157.24 billion, up from the previous quarter's $147.4 billion.
Having such a large supply of cash protects the Warren Buffett stock during tough times. It also means Berkshire Hathaway is able to deploy capital when desirable businesses become available for purchase.
The firm yet again slowed down the pace of share repurchases. Warren Buffett bought just $1.1 billion of its stock in Q3 compared to $1.4 billion of Berkshire stock in Q2. In the first quarter, Berkshire repurchased $4.4 billion, up 57% from Q4 of last year and the most since Q1 2021.
Nevertheless, recent buying of Berkshire Hathaway stock contrasts with Buffett's larger number of deals during and after the Great Recession. But the firm may look to make more deals if a recession starts to make acquisition targets more alluring.
Analyst Rates Berkshire Stock
CFRA analyst Catherine Seifert rates BRKB stock as a buy with a 405 price target.
"We lift our 12-month target price by $10 to $405, valuing BRK.B shares at 20.2 [times] our '25 operating EPS estimate of $20.05 (upped today by $0.10) and 21.5 [times] our '24 EPS estimate of $18.85, vs. its 3-year average forward multiple of 22.6 [times]," she said in a research note on Monday.
"We lift our '23 EPS estimate by $0.11 to $17.87 after Q3 operating EPS of $4.96 vs. $3.48 (restated) topped our $4.85 EPS estimate, the $4.93 consensus view, on 21% higher operating revenues amid 14% higher insurance premiums, a 70% surge in interest and dividend income and a 3-fold increase in energy and utility revenues ..."
She also said that "strong top-line growth and improved margins will provide the (BRKB) shares with a catalyst."
Difference Between BRKA Stock And BRKB Stock
The most obvious difference between Berkshire Hathaway's A class and B class shares is the price. While at nearly 360 per share, BRKB stock may be considered relatively expensive, BRKA stock is the most expensive on the market. It currently trades near an astounding $537,000 per share.
Warren Buffett decided to introduce the BRKB shares to allow investors to purchase stock directly. Big demand for Berkshire Hathaway stock forced less-moneyed players to plow cash into unit trusts or mutual funds that mirrored his company's holdings.
Berkshire Hathaway Today
Berkshire Hathaway operates in four main sectors.
Its insurance group is one of its biggest cash cows. One of the most famous jewels in the crown is Geico. Other parts of this business include multinational property/casualty and life/health reinsurance company General Re and Berkshire Hathaway Reinsurance Group. The latter underwrites excess-of-loss reinsurance and quota-share coverage globally.
Insurance operations are a big reason why Berkshire Hathaway earnings can be lumpy.
Its Regulated Utility Business group includes Berkshire Hathaway Energy, formerly known as MidAmerican Energy. It also includes railway services arm BNSF, North America's largest freight railroad network.
Meanwhile, the Manufacturing, Service & Retailing group includes Acme Building Brands, Fruit of the Loom and Justin Brands. The likes of Buffalo News, Business Wire, Dairy Queen and NetJets fall under the service subsector. Retailers include See's Candies, Ben Bridge Jeweler, Helzberg Diamond Shops and Star Furniture.
Finally, the Finance & Financial Products segment includes Hathaway Credit Corporation, transportation equipment and furniture leasing specialists XTRA and CORT, and BH Finance whose main interest is in proprietary investing strategies.
Warren Buffett Names Successor
One of the biggest questions around the future of Berkshire Hathaway in recent years was who would take over the mantle of CEO from Buffett.
The Oracle of Omaha has finally given the answer. He said Greg Abel, who runs the noninsurance businesses, will take over in his stead.
Abel, a Berkshire vice chairman since 2018, had long been viewed by analysts as a possible successor. The Canadian is chairman and CEO of Berkshire Hathaway Energy. He has also been vice chairman of Berkshire's noninsurance operations since January 2018.
The firm has not disclosed the precise timing of Berkshire's leadership turnover.
Is Berkshire Hathaway Stock A Buy Now?
Berkshire Hathaway stock generally lagged the S&P 500 index since late 2017, but managed to handily outperform the benchmark index in 2022. It is lagging again in 2023 after giving up some spring and summer gains.
Berkshire stock is forming a new base, which makes it one to watch for now for those want to own some BRKB due to the company's diversified portfolio of businesses.
And while Wall Street sees EPS growth ahead for Berkshire for 2023 and in 2024, it remains shy of the rates sought by many growth investors.
Bottom line: Berkshire Hathaway stock is worth adding to one's watchlist if you are keen to add the ultimate Warren Buffett stock to your portfolio.
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