Morningstar notes: Buy Berkshire Hathaway $Berkshire Hathaway(BRK.B)$ $Berkshire Hathaway(BRK.A)$ stock for Warren Buffett’s steady hand during crises.
Why?
The company's long history of aiding failing banks is one reason for investors to buy Berkshire Hathaway.
Recently, the market has noticed that The “Oracle of Omaha” has been in contact with the Biden administration in recent days about possibly investing in regional banks in some way.
“On multiple occasions over the past two decades we have seen firms seek out capital from Berkshire on the belief that the ‘Buffett Seal of Approval’ that came with that capital injection would reduce the pressure on their shares,” Morningstar’s Warren said.
The legendary investor has been a white knight for troubled banks on other occasions. In 2011, Buffett injected $5 billion into beleaguered $Bank of America(BAC)$ in a major show of faith, aiding the lender that was then struggling with legal woes from the financial crisis and the disastrous acquisition of Countrywide Financial in 2008. Buffett also famously came to $Goldman Sachs(GS)$ ’ rescue with a $5 billion cash infusion after the collapse of Lehman Brothers in 2008.
However, the analyst also pointed, given its diverse businesses and unmatched balance sheet strength as downside protection, Berkshire shares are appealing right now. The conglomerate’s massive cash pile stood close to $130 billion at the end of 2022.
Warren Buffett, Berkshire Hathaway CEO and chairman. Cnbc | Nbcuniversal | Getty Images
Berkshire has a lot of cash, and its capital efficiency is very high. Even in bear markets or economic difficulties, or when stocks fall, it has the strength to buy back its own company's stock.
How to identify companies with high capital efficiency?
Capital efficiency is a metric that primarily reflects the stability of a company's cash flow, and another characteristic of capital efficient companies is that their annual returns to shareholders almost always exceed what they spend on capital investments.How to screen for the most capital efficient companies?
- Companies with considerable market capitalization.
- The company's performance continues to increase its income year after year.
- Companies with high return on assets.
- Companies that can generate significant free cash flow (FCF). Free cash flow is the amount of cash remaining after all operating expenses and business investments.
- A company that consistently rewards shareholders with dividends and share buybacks.
During a market downturn, we recommend that you especially focus on finding and allocating capital-efficient stocks that share these five characteristics.
Jeremy Siegel: 15 high capital efficient company stock lists
Wharton economist Jeremy Siegel listed 15 best-performing stocks in the $S&P 500(.SPX)$ from 1957 to 2007.
Consider that the composition of the S&P 500 changes frequently. Siegel went through a list of stocks going back to 1957, and then track each stock's return data excluding dividends, spin-offs, mergers and liquidations, and other eventual returns.
The results are as follows:
| Company | Industry | Annualized Return |
| $Philip Morris(PM)$ | Tobaco | 20% |
| $Abbott Laboratories(ABT)$ | Healthcare Equipment | 17% |
| $Bristol-Myers Squibb(BMY)$ | Pharmacy | 16% |
| $Tootsie Roll(TR)$ | Packaged foods and meats | 16% |
| $Pfizer(PFE)$ | Pharmacy | 16% |
| $Coca-Cola(KO)$ | Soft Drinks | 16% |
| $Merck(MRK)$ | Pharmacy | 16% |
| $Pepsi(PEP)$ | Soft Drinks | 16% |
| $Crane(CR)$ | Manufactural | 15% |
| $The Kraft Heinz Company(KHC)$ | Packaged foods and meats | 15% |
| $Fortune Brands Home & Security(FBIN)$ | Building Products | 15% |
| $Kroger(KR)$ | Food Retail | 14% |
| Schering-Plough | Pharmacy | 14% |
| $Hershey(HSY)$ | Packaged foods and meats | 14% |
| $General Mills(GIS)$ | Packaged foods and meats | 14% |
Source: Jemery Siegel, the future for investors
According to the statistics, we can see that almost without exception, the above companies have relatively high sales and high-profit margins in stable industries, and these industries mainly operate a few well-known brands.
Looking at the top 10 companies on this list, they all have annualized returns of 15% or more. We believe many of these companies products are in many American homes.
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