ii view: Berkshire Hathaway cash pile hits record levels

Does a 16% share price underperformance vs the S&P 500 year-to-date suggest growing investor impatience? 

Third-quarter results

• Operating earnings up 14.2% to $7.86 billion
• Class A earnings per share up 15% to $4,816
• Cash of $128.2 billion

ii round-up:

Operating more than 90 businesses, Warren Buffett's conglomerate Berkshire Hathaway (NYSE:BRK.B) reported third-quarter results which topped analysts'estimates. 

Cost cutting, tax credits and resilience from the group's consumer facing businesses helped offset the impact from increased trade tariffs on others.

Operating income rose to $7.86 billion, or approximately $4,816 per class A share, up on the prior year quarter outcome of $4,189 per share and ahead of the consensus estimate at around $4,405 (source: Refinitiv). 

Increased profit from manufacturing, services and retailing compensated for trade tariff hit sales of gas turbine and pipe products.  

Group cash hit a record $128.2 billion as the company's legendary founder and investor Warren Buffett struggled to find suitable value enhancing investments to buy. It has been nearly four years since Omaha Nebraska headquartered Berkshire made a major acquisition. 

Insurance underwriting profit came in virtually unchanged, although Berkshire warned that pay-outs from typhoon hit Japan last month will likely hamper fourth-quarter underwriting results. 

ii view:

Led by legendary investor and businessman Warren Buffett, Berkshire Hathaway is tracked and invested in by large and small investors alike. A conglomerate of different businesses and investments acquired under the watchful eye of Mr Buffett, Berkshire as an American company offers investors a near one-stop investment destination.  

From an investment perspective, the company's cash balance proves a focus. A sum of $128 billion could see the company making a major acquisition. It could also provide for significant shareholder returns. However, a 16% underperformance compared to the S&P 500 index year-to-date may suggest that investors are growing impatient with the company's inability to find a home to invest its cash mountain, despite repurchasing $700 million of its own stock in the third-quarter. Or it may underline other factors such as its exposure to the US-China trade war. 

Positives: 

• Diverse portfolio of industries and businesses
• Warren Buffett regarded as a legendary investor and businessman 

Negatives:

• Subject to macro-economic and geopolitical uncertainties
• Management succession risk – who might replace current Buffett?

The average rating of stock market analysts:

Buy