Berkshire Hathaway's equity portfolio is suffering a $65 billion hit so far in the second quarter, led by losses in Apple, Bank of America and American Express, Barron's estimates.
The paper losses so far this quarter are manageable for Warren Buffett's big conglomerate, given its formidable balance sheet with more than $100 billion of cash and equivalents at the end of March, and projected net income of early $30 billion this year.
The equity portfolio of Berkshire Hathaway (BRK.A, BRK.B) totaled $390 billion at the end of the first quarter -- and around $400 billion including a stake in Kraft Heinz $(KHC)$, which gets different accounting treatment. The estimated drop in the value of the portfolio of about 16% roughly matches the percentage decline in the S&P 500 since March 31.
Apple $(AAPL)$ accounts for the bulk of paper losses, with shares of the iPhone maker down about 25% to $131.88 so far in the second quarter. Berkshire held more than 900 million shares of Apple at the end of the first quarter. Berkshire still is sitting with a big gain of about $85 billion in its Apple stake, for which the company paid an average of about $34 a share.
Bank of America $(BAC)$, the No. 2 holding in the Berkshire portfolio, is off 22% so far this quarter to $32.02 a share. The No. 3 and No. 4 holdings, Chevron $(CVX)$ and Coca-Cola $(KO)$, are little changed this quarter while No. 5 American Express $(AXP)$ has declined 22% to $131.88.
Berkshire shares have come under pressure lately with the Class A stock down 3.7% to $423,700 Monday and off 22% from its late-March high. Berkshire's Class B stock finished Monday at $281.56, down 3.5%.
Barron's estimates that Berkshire's book value, or shareholder equity per share, should end the current quarter at around $315,000 per class A share, down about 9% from the March 31 figure of $345,000. This assumes no change in the value of the portfolio between now and June 30.
The decline reflects the drop in the equity portfolio, which will run through Berkshire's income statement, partly offset by the company's operating profits, which are projected to total about $8 billion after taxes in the current period. CEO Buffett, 91, regularly tells investors to focus on the operating profits and not on the impact of changes in the value of the equity portfolio on earnings.
Berkshire trades for 1.35 times our estimate of the current book value, which is toward the middle of its valuation range of recent years. The stock hit 1.5 times book in late March and traded as low as 1.1 times book in May 2020.
Berkshire offers a play on a revival in the stock market and what has been rising earnings power from a diversified group of businesses led by the Burlington Northern Santa Fe railroad, Berkshire Hathaway Energy (one of the country's largest electric utilities), auto insurer Geico, and a large reinsurance business.
It will be interesting to see if Buffett and his two investments lieutenants, Todd Combs and Ted Weschler, continued their equity buying spree in the current quarter after they bought over $50 billion of stocks in the first quarter -- notably a big expansion of a holding in Chevron, which totaled $25.9 billion on March 31.
Berkshire watchers also will be eager to see if Buffett stepped up Berkshire's share repurchase program in the current quarter after it slowed in the first quarter to about $3 billion -- less than half the quarterly pace of 2021- as the stock price rose.
Buffett said at Berkshire's annual meeting that the company wasn't a buyer of its stock in April, but that may have changed with the drop in the shares in recent weeks. Buffett has said Berkshire would be price sensitive on its buybacks, and that has been the case. Investors view buybacks as a sign of Buffett's enthusiasm for the stock.