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ii view: cash pile at Buffett's Berkshire Hathaway racing toward $150bn

The experience of Warren Buffett and a major investment in Apple. Buy, sell, or hold?

7th August 2023 11:22

by Keith Bowman from interactive investor

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Second-quarter results to 30 June 

  • Operating earnings up 6.6% to $10 billion (£7.9 billion)
  • Net earnings attributable to shareholders of $35.2 billion ($27.8 billion), up from a loss of $43.6 billion
  • Cash held of $147 billion (£116.1 billion) up from $130 billion in the previous quarter

ii round-up:

The Warren Buffett run conglomerate Berkshire Hathaway Inc Class B (NYSE:BRK.B) detailed a gain in second-quarter operating profit as cash held rose close to its a record. 

Operating profit and excluding gains or losses from its investment portfolio rose 6.6% in the second quarter to end-June, as higher premiums and profit at its insurance business countered lower volumes and earnings at its rail freight division.

Berkshire, whose share price is up 14% year-to-date, said overall group profit including gains or losses from investments soared to $35.2 billion from a loss of $43.6 billion this time last year, helped by a 40% share price gain during 2023 from its major investment in iPhone maker Apple Inc (NASDAQ:AAPL)

Berkshire, which operates over 90 businesses, detailed cash held of $147 billion, up from $128.7 billion at the end of 2022, and higher than the $130 billion retained at the end of the previous first quarter. Berkshire's record was $149 billion in 2021.

Profit at the insurance underwriting business climbed to $1.24 billion from $715 million during the second quarter last year, countering profit retreats at both its BNSF rail freight division and its energy related businesses. 

Cash used to buy back its own shares totalled $1.4 billion during the quarter, down from the first quarter’s $4.4 billion. Legendary investor Warren Buffett turns 93 on 30 August. 

ii view:

Berkshire Hathaway shares trade on the New York Stock Exchange under the two classes of 'A' and 'B' shares, with the originally established 'A' class shares carrying much higher voting power. Berkshire, which Mr Buffett has run since 1965, engages in a range of business activities including insurance and reinsurance, utilities and energy, and the manufacture of consumer and building related products. 

For investors, an uncertain economic outlook including possible further interest rate rises and a cost-of-living crisis for consumers cannot be forgotten. Elevated costs for businesses generally warrant consideration, earnings for its insurance underwriting business can prove volatile, while the eventual departure of Buffett from the business could potentially dampen investor enthusiasm.

On the upside, its diversity of businesses regularly leaves gains for one division countering falls for another. Recent investment transactions included a reduction in its holding of oil major Chevron Corp (NYSE:CVX), while its ongoing share buyback programme continues to offer share price support.

On balance, and given both its high cash balance to potentially execute takeovers or purchase its own shares, plus the legendary judgement and experience of Buffett and his team, Berkshire shares look to remain worthy of their place in many diversified portfolios focused on the longer term.    

Positives: 

  • Diverse portfolio of industries and businesses
  • Company chairman Warren Buffett is regarded by many as a legendary investor and businessman 

Negatives:

  • Subject to macro-economic and geopolitical uncertainties
  • Management succession risk - Mr Buffett is in his 90’s

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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