Berkshire Hathaway empire ‘prepared’ for Warren Buffett’s departure
https://www.scmp.com/news/world/united- ... en-buffets
BERKSHIRE HATHAWAY INC.
https://berkshirehathaway.com/letters/2019ltr.pdf
Berkshire posted record full-year earnings of $81.42 billion, nearly twice the prior high from 2017, boosted by unrealized gains from its stock investments.
Operating profit, however, fell 3% to $23.97 billion.
The Omaha, Nebraska-based conglomerate ended the year with a $128 billion cash hoard, after repurchasing $2.2 billion of stock in the fourth quarter and $5 billion in 2019.
Berkshire has more than 90 units employing 391,539 people, including the BNSF railroad, Geico car insurer, Dairy Queen ice cream and See's candies; clothing and jewelry companies, and namesake utility and real estate brokerage businesses.
It also invests in such companies as American Express Co , Bank of America Corp and Coca-Cola Co .
After hitting a peak of $229.33 on February 17, Berkshire's share price tumbled a whopping 29.3% to $162.13 on March 23.
At the end of 2019, Berkshire's stock market portfolio was $248 billion. By March 23, the value of Berkshire's share of the top 10 publicly traded holdings was down by as much as $83 billion.
Berkshire's stakes in Apple (Nasdaq: AAPL), Coca-Cola (NYSE: KO) and Delta fell by an average of 43% between February 20 and midday on March 23.
Berkshire took a $27 billion hit on its Apple stock alone. Delta's shares fell by an astonishing 63%.
The value of Berkshire's Bank of America (NYSE: BAC) stock fell by $15 billion.
The earnings of Berkshire's top 10 stock market portfolio positions in 2019 totaled $8.3 billion.
Meanwhile, Berkshire's earnings from insurance, railroads, utilities and other businesses were far greater, tallying $23.3 billion in 2019.
Put another way... Of Berkshire's total earnings of about $31.6 billion, over 75% comes from companies not listed on the stock market!
At the close of 2019, Berkshire had $128 billion in cash on its balance sheet.
Buffett can put his cash to work in three major ways.
First, Berkshire can buy back its stock. The company has indicated it is willing to spend $100 billion for that purpose, but only when the price is below its "intrinsic value."
In the final three months of 2019, Berkshire repurchased $2.2 billion worth of its stock. That was at a price-to-book ratio of roughly 1.3.
On March 23, Berkshire's price-to-book value dropped below 1 to 0.92. And today it stands at 1.04.
Second, Berkshire's top 10 publicly traded holdings are trading at about 40% off their peaks.
Berkshire's holding time for stocks is "forever." So Buffett is happy to buy additional stock at a lower price, as he did with Delta.
Third, the coronavirus crash offers Berkshire the option to act as a "dealmaker of last resort."
Berkshire reported $5.9 billion in operating profit in the first quarter, or about $3,619 per class A share.
Berkshire also has $137.3 billion in cash.
Assume a 10% decline in 2020 operating income and applied 11 times pre-tax multiple to Berkshire’s A-class shares. After adding in the company’s cash position, he arrived at a $373,000 price target. For us plebeians that own B-class shares, that translates to $248.66, or about 41% upside.
Berkshire Hathaway is down $13.6 billion just on one stock this year: Bank Of America. The bank's brutal 41% drop this year hurts as Berkshire Hathaway owns nearly 11% of the company.
Wells Fargo is down even more: 58%. That's wiped nearly $11 billion from Berkshire's portfolio.
And then there's American Express (AXP), off 37%, costing the portfolio nearly $7 billion.
Six of Berkshire's worst eight losses are all financials.
Berkshire Hathaway holds 17 publicly traded financials. That's more than any other sector in the portfolio.
And Berkshire Hathaway's public holdings in financial stocks account for a third of his portfolio.
In contrast, the financials sector accounts for just 13% of the S&P 500 and just 19.5% of S&P 500 value indexes.
Coca-Cola is down twice that of the sector, 21%, this year. Buffett owns 9% of the company so the drop bubbles into a $4.6 billion loss this year.
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