Stock buybacks, succession, investments, Geico and the Alleghany deal are some of the topics that Berkshire Hathaway CEO Warren Buffett may address in his eagerly anticipated shareholder letter due for release on Saturday morning.
Buffett, now 92, has limited his public appearances in recent years and the letter will be his first major communication with Berkshire Hathaway (ticker: BRK/A,BRK/B) shareholders since the company's annual meeting last April. The letter will be accompanied by Berkshire's fourth-quarter earnings release and annual report. They all are expected around 8 a.m. Eastern time on Saturday.
Here are 10 topics that many investors -- and Barron's -- would like to see Buffett address:
1. Buybacks
Share repurchases totaled just $5 billion in the first three quarters of 2022, against $27 billion for all of 2021 and $25 billion in 2020. Why the slowdown? Is Buffett less enamored of the stock? Barron's estimates the stock now trades around 1.4 times book value -- in line with its five-year average.
2. Succession
Berkshire has identified Greg Abel, a Berkshire vice chairman who heads the conglomerate's huge non-insurance operations, as Buffett's likely successor as CEO. Investors would like to know more about Abel, Buffett's confidence in him and Berkshire's post-Buffett management structure.
3. Investments
Berkshire had an active 2022, buying about $20 billion of Chevron (CVX), a stake of over 20% in Occidental Petroleum (OXY) and big interests in HP (HPQ), Paramount Global (PARA) as well as Citigroup (C). Would Buffett consider buying all of Occidental and why the purchase then quick sale of Taiwan Semiconductor (TSM) last year?
What does Buffett think of the energy sector and banks, which he has continued to sell? Buffett has long lamented the tough climate for acquisitions due to cheap money and competition from private equity. Is the game changing in Berkshire's favor? Will he ever bag what he has called an elephant-sized deal for close to $100 billion?
4. Todd and Ted
Buffett Investment lieutenants Ted Weschler and Todd Combs now manage about 10% of Berkshire's $350 billion equity portfolio. They' have been in that role for more than 10 years. How are they doing? That's important since they are expected to run the entire portfolio in the post-Buffett era. Buffett told CNBC in 2019 they were both "a tiny bit" behind the S&P 500 since they joined. Many investors would like to see an update on their performance especially given that 2022 appeared to be a tough year for them with many of Berkshire's smaller equity investments down sharply
5. Geico
The auto insurer has long been the crown jewel of Berkshire's huge property and casualty operations. But Geico has struggled with weak underwriting results in recent quarters. Geico, like others in the industry, has been hurt by rising claims costs and has been boosting rates to offset that. Geico, the No, 2 auto insurer, has fallen behind rival Progressive in its use of technology including real-time driving information to price policies. Is Geico making progress and can it catch Progressive?
6. Todd Combs
Combs was installed by Buffett as Geico's CEO three years ago in what Buffett then suggested would be a temporary role. How much longer will Combs be running Geico?
7. Alleghany
Berkshire's purchase of the property and casualty insurer for about $12 billion in October was its biggest deal since the $30 billion-plus deal for Precision Castparts in 2016. How will Alleghany aid Berkshire's P&C operations and what will happen to Alleghany's appealing group of non-insurance businesses? It was Barron's view that Berkshire got a very good deal with Alleghany. And how does Buffett view rising premiums throughout the P&C sector.
8. Joe Brandon
Look for Buffett to praise Alleghany CEO Joe Brandon, a veteran insurance executive who once headed Berkshire's General Re unit. Brandon could one day succeed Ajit Jain, 71, who now heads Berkshire's insurance operations.
9. Berkshire Breakup
Buffett has said that the stock likely would go up on the day after his death on breakup speculation. Buffett wants Berkshire kept intact and has gone as far as predicting that the Burlington Northern Santa Fe railroad, Berkshire's single largest operating unit, would be part of the company a century from now. Why is a breakup a bad idea for Berkshire when so many large companies including Johnson and Johnson and General Electric are pursuing spinoffs and getting more focused?
10. Berkshire's Future
How does Buffett see Berkshire in five or 10 years? Would he like his successor to actively pursue acquisitions or stick with the current structure? Can a company of Berkshire's size and complexity be competently managed without someone of Buffett's genius at helm? Berkshire stock is behind the S&P 500 over the past 5 and 10 years. Can it outperform in the future?