Boasting a sizable cash reserve and stellar fiscal performance, Warren Buffett’s iconic investing powerhouse, Berkshire Hathaway (BRK.B), recently nearly hit a $1 trillion market cap. However, considering the CEO’s warning to investors and the looming threat of a lawsuit against his power company, should you invest in stocks now? Read on to find out….
Led by legendary investor Warren Buffett, the conglomerate Berkshire Hathaway Inc. (BRK.B) is renowned for its exceptional investment portfolio. Additionally, the company has a proven track record of consistently outperforming benchmarks like the S&P 500 with its stellar performance.
In a recent communication to BRK.B shareholders, CEO Warren Buffet highlighted Noticeable outperformance by BRK.Bboasting a staggering 4,400,000% return versus the S&P 500’s 31,000% return since he took over the leadership in 1965.
Additionally, the company’s fourth-quarter results showed an unprecedented increase in its cash reserves, reaching $167.60 billion, higher than the market capitalization of some major companies in the United States.
On the heels of record fourth-quarter and fiscal year results, BRK.B shares skyrocketed earlier this week, nearly reaching the $1 trillion market cap milestone. However, despite the company’s impressive success thus far, Buffett’s letter to shareholders added a note of caution in the celebration.
Emphasizing the importance of moderate expectations, Buffet highlighted BRK.B’s enduring commitment to stability and longevity, indicating that the era of seismic deals and extraordinary performances may be coming to an end. He cautioned investors against overly optimistic expectations, indicating that expecting anything beyond a modest improvement would be wishful thinking.
Meanwhile, BRK.B revealed yesterday the looming threat of legal action from the US government against its subsidiary, PacifiCorp, alleging its failure to cover $356 million in costs associated with the 2020 Slater Fire in southern Oregon and northern California.
In the wake of this disclosure, BRK.B shares plummeted amid investor concerns, halting its ascent towards the $1 trillion market capitalization milestone. Currently, the stock has a market capitalization of $885.77 billion.
BRK.B shares have jumped 34.5% over the past year and 27.6% over the past nine months, closing the latest trading session at $408.91.
Here are the key aspects of BRK.B that could influence its performance in the near term:
Strong financials
For the fiscal fourth quarter, ended Dec. 31, 2023, BRK.B’s operating earnings increased 28% from the prior-year quarter to $8.48 billion. Net earnings attributable to the company were $37.57 billion, up 107.8% from a year ago.
Meanwhile, BRK.B’s total revenue for the fiscal year (ended December 31, 2023) increased 20.7% year-over-year to $364.48 billion. Furthermore, its net profits and comprehensive income statement amounted to $99.15 billion and $98.47 billion compared to a net and comprehensive loss of $22 billion and $18.99 billion in the year-ago period, respectively.
Elongated evaluation
In terms of forward non-GAAP P/E, BRK.B trades at 21.85x, 112.9% higher than the industry average of 10.26x. Likewise, its forward price-to-sales multiple of 2.46 is slightly higher than the industry average of 2.45x. Additionally, the stock’s forward price-to-book ratio of 1.47x is 44.4% higher than the industry average of 1.02x.
Mixed profitability
BRK.B’s trailing 12-month net profit and leveraged FCF margins of 26.40% and 19.15% are 12.2% and 3.3% higher, respectively, than industry averages of 23.53 % and 18.54%. On the other hand, the stock’s trailing 12-month gross profit margin of 33.80% is 43.7% lower than the industry average of 60.08%.
POWR ratings show uncertainty
BRK.B’s fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, which translates to Neutral in our proprietary rating system. POWR Ratings are calculated by taking into account 118 distinct factors, with each factor weighted optimally.
Our proprietary rating system also evaluates each security based on eight distinct categories. BRK.B has a D grade in terms of value, justified by its higher-than-industry valuation metrics.
Whereas the stock’s B grade for Momentum is in sync with its stock price currently trading above its 200-day moving average of $355.16 and 10-day moving average of $406.98. Meanwhile, BRK.B’s C quality grade is consistent with its mixed profitability metrics.
In category B Insurance: property and casualty sector, BRK.B is ranked 43rd out of 54 stocks.
In addition to the above, we also evaluated the stock in terms of growth, stability and sentiment. Get all BRK.B ratings Here.
Bottom line
Despite recently touching the $1 trillion market capitalization mark, a note of caution from CEO Warren Buffet casts a shadow of doubt on the company’s potential to produce extraordinary returns in the future.
Furthermore, BRK.B’s mixed fundamentals and the recent setback triggered by the looming threat of a lawsuit from the US government further contribute to the prevailing uncertainty surrounding the company’s trajectory.
However, despite all this, taking a totally pessimistic view of the company’s stock may not be a wise move. It is important to recognize BRK.B’s impressive resilience, its financial strength in its fourth quarter and fiscal year results, and consistent outperformance versus the S&P 500 Index.
That said, investors may want to consider keeping an eye on the stock for a potentially more favorable entry point.
How does Does Berkshire Hathaway Inc. (BRK.B) hold up against its peers?
While BRK.B has an overall grade of C, equivalent to a Neutral rating, you can check out other stocks within the Insurance: property and casualty industry: Unipol Gruppo SpA (UFGSY), Mercury General Corporation (MCY) and Universal Insurance Holdings, Inc. (TO BE), with an A rating (Strong Buy). To explore more insurance industry stocks – Property & Casualty, Click here.
What to do next?
Discover 10 widely held stocks that, according to our proprietary model, have enormous downside potential. Please make sure none of these”deadly trapStocks are lurking in your portfolio:
10 shares to SELL NOW! >
BRK.B shares fell $1.76 (-0.43%) in pre-market trading on Wednesday. Year to date, BRK.B has gained 14.65%, compared to a 6.65% gain in the benchmark S&P 500 index over the same period.
About the author: Anushka Mukherjee
Anushka’s ultimate goal is to provide investors with essential knowledge that enables them to make well-informed investment choices and achieve sustained financial prosperity over the long term.
Moreover…
The mail Is Berkshire Hathaway (BRK.B) Ready to Rally? appeared first StockNews.com