At 91, Does Warren Still Have IT?

A massive shift is happening in the financial markets. And could soon impact the savings of thousands, leaving many worse off than before.

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Set it and forget it. 

It’s every investor’s fantasy. Buy one stock and hold onto it forever. 

For example, if you invested $1,000 in Berkshire Hathaway (BRK.B) stock in 1964, today it would be worth more than $25 million. 

If you ask the company’s co-founder, Charlie Munger, he believes Berkshire is built to last for a very long time and will continue to thrive, after he and Warren Buffett leave the scene for good. 

But is that really true?

Financial pros seem to think so.

With more than 1,600 monthly searches, these titans of Wall Street look at Berkshire’s stock on a level that includes Chevron (CVX), General Electric (GE) and other heavy hitters.

We like this stock too. 

And here’s why.

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Berkshire Hathaway’s Business

BRK.B is a conglomerate run by famed investors, Warren Buffett and Charlie Munger. It owns GEICO Auto Insurance, Duracell, Gateway Underwriters Agency, International Dairy Queen, NetJets, Heinz, Fruit of the Loom Companies, and Business Wire, to name a few. 

Although the firm tends to buy companies outright, it also has a massive portfolio of stocks. Here are the top tickers in the Berkshire Hathaway portfolio.

As you can see, it has a substantial position in Apple (AAPL), owning more than 890 million shares. 

BRK.B breaks its business down into the following segments: Insurance and Other, Railroad, Utilities, and Energy. 

Sales and services revenue from its insurance business is the firm’s largest revenue driver, as it did $37.8 billion out of a total of $70.8 billion in Q1 2022.  

Warren’s famous for investing in companies with solid brands, loyal customers, and great cash flow.

He isn’t interested in getting 10x his money next year, but 20% per year does him just fine.

Financials

BRK.B consistently grows revenues with only slight dips during economic downturns such as 2009 and 2020.

Yet, they always bounce back.

Year over year, the company grew revenues by 13.45%, which is significantly better than its five-year average of 4.68%

Now, if there is one thing that BRK.B does better than virtually any other company, it’s generating cash from its operations. It generated $36.94 billion in cash from its operations. That is outstanding when you consider the sector median is $145 million. 

Of course, when you think of Buffett and Munger, you think long-term and responsible investing. And that’s exactly how they run their business. 

The firm has total debt of $119.66 billion, cash of $106 billion, and a market cap north of $612 billion.  

Valuation

BRK.B has a P/E ratio of 7.44x, which is substantially lower than its 5-year average of 20.65x.  However, its Non-GAAP P/E ratio sits at 22.65x, which is unusual, but not overly concerning. This often happens when the company makes big purchases or divestitures.

Furthermore, BRK.B has a price-to-sales ratio of 2.2x, which is phenomenal when compared to the sector median of 2.86x. In general, the lower the price-to-sales ratio, the better. It shows the company is generating more revenue for every dollar investors have put into the company. 

Now, if there is one thing that Warren and Charlie know how to do, it’s investing in profitable companies. So it should not come as a surprise—Berkshire Hathaway is an extremely profitable company.  

The firm has a gross profit margin of 37.9%, which is even better than its 5-year average of 23.45%. But it gets even better. BRK.B has an 8.6% return on total assets. The sector median is 1.25%.

Furthermore, BRK.B has an EBITDA Margin of 41.7%, which is head and shoulders above the sector median of 23.18%

Now, if there was one knock on BRK.B, is that it’s not a hyper growth stock.  They don’t have any new or amazing technology in the pipeline. Some investors might be also turned off because it doesn’t offer a dividend. 

However, investing is all about weighing the pros and cons, and based on Berkshire Hathaway’s long-term track record, the two deterrents above are not enough to outweigh all the positive aspects of the business. 

Our Opinion – 10/10

Berkshire Hathaway manages businesses and invests in companies. The company was formed by two of the greatest investors of all time. And while they are in their 90s now, they’ve passed their knowledge on to their successors. 

Right now,  shares are trading roughly 20% from their 52-week high. If you are a long-term investor, then we believe BRK.B is a buy right here.