ii view: would you bet against Warren Buffett?

by Keith Bowman from interactive investor |

Airline stocks aided a near-$50 billion loss in Q1, but Berkshire Hathaway's cash pile keeps growing. 

First-quarter results

  • Loss attributable to shareholders of $49.7 billion 
  • Operating earnings rose 5.7% to $5.87 billion
  • Cash of $137 billion

ii round-up:

Hit by the coronavirus, Warren Buffett-run conglomerate Berkshire Hathaway (NYSE:BRK.B) posted a loss of nearly $50 billion in these latest quarterly results.

Most of Berkshire's 90-plus businesses suffered some hit from the Covid-19 outbreak. Revenues had slowed considerably in April. 

Berkshire shares are down by nearly 20% year-to-date having gained by just under 11% in 2019 – underperforming a gain of nearly 29% for the S&P 500 index.

Sales for its entire holdings in investments of the four main US airlines, including American (NASDAQ:AAL) and Delta (NYSE:DAL) - rivals of UK major IAG (LSE:IAG) - contributed to the quarterly investment loss.  

Gains in its investments of companies such as Apple (NASDAQ:AAPL) and JP Morgan (NYSE:JPM) had helped its full-year 2019 profit hit $81.4 billion.

First-quarter earnings, when stripping out investment gains or losses, Mr Buffett’s preferred view of performance, rose by just under 6% to $5.87 billion. Losses for its railroad, utilities and energy businesses were more than offset by gains in insurance related business. 

The ongoing lack of a value enhancing major acquisition meant that group cash rose further to $137 billion - up from $128 billion year-end 2019.  

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.  

At the moment, the company’s cash balance remains a core focus. A sum of $137 billion could see Berkshire making a major acquisition. It could also provide for significant shareholder returns.

But an 18% underperformance compared to the S&P 500 index over 2019 may suggest that investors are growing impatient with the company’s inability to find a home to invest its cash mountain, despite repurchasing $5 billion of its own stock in 2019. Mr Buffett turning 90 later this year is also raising questions regarding management succession plans. 

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 – who might replace current Chairman Warren Buffett

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.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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