Should Warren Buffett’s Favorite Stock be Yours Too?

Key Points

• Since 1965, Warren Buffett has delivered nearly 20% compounded annual returns, consistently outperforming the broader market.
• BRK.B shares are up 31% YTD, beating the financial sector’s 26.28% gain and the S&P 500’s 22.51% return.
• Berkshire trimmed Apple and Bank of America holdings, boosting cash reserves to $277 billion with investments in U.S. Treasuries.

Warren Buffett, arguably the most significant investor of all time, has been at the helm of Berkshire Hathaway for nearly 60 years, achieving unparalleled success. Since assuming control in 1965, he has delivered an almost 20% compounded annual return, consistently outpacing the broader market.

While the media typically focuses on his positions in companies like Apple, Coca-Cola, and Occidental Petroleum, it’s easy to overlook that his favorite stock has always been his very own, Berkshire Hathaway. But should it be yours too? Let’s take a closer look.

Berkshire’s Performance and Momentum

Berkshire Hathaway’s ability to beat the market remains intact. BRK.B is up 31% YTD, outperforming both its sector’s 26.28% gain and the S&P 500’s 22.51% return. With the financial services sector recently breaking out to new 52-week highs and Berkshire’s following earnings report scheduled for November 1, 2024, the company’s momentum shows little sign of slowing.

In its most recent earnings release on August 3, 2024, Berkshire exceeded expectations, reporting $5.38 EPS versus a consensus estimate of $4.83. Despite the stock’s significant gains, it remains reasonably valued with a P/E ratio of 14.81 and a PEG ratio of 0.64. This suggests that Berkshire continues offering investors good value relative to its growth prospects.

Strategic Changes in Berkshire’s Portfolio

Much of the anticipation around Berkshire stems from changes highlighted in its quarterly 13F filings. In recent quarters, Berkshire has begun rebalancing its portfolio by reducing its stakes in Apple and Bank of America. Once representing more than 50% of Berkshire’s portfolio, Apple’s share has now dropped to 29% following multiple rounds of selling.

Similarly, the company has aggressively trimmed its Bank of America holdings, which now account for 10% of the portfolio, down from 13%. Despite these reductions, the remaining Bank of America stake is still worth $31 billion, underscoring the scale of Berkshire’s investments.

These sales have allowed Berkshire to pivot toward a surprising new allocation: U.S. Treasuries. With more than $234 billion now invested in short-term government bonds, the company’s cash and equivalents have surged to $277 billion. This conservative move reflects Buffett’s ability to remain opportunistic while positioning Berkshire to weather any economic turbulence.

Alongside these developments, Berkshire has added two new positions: Heico and Ulta Beauty. These investments align with Buffett’s philosophy of buying companies with wide economic moats. Meanwhile, Berkshire has also increased its holdings in familiar names, including Sirius XM Holdings, Occidental Petroleum, and Chubb, an insurance company that fits well with Berkshire’s core businesses.

On the flip side, the company fully exited troubled Paramount Global and sold off its position in Snowflake, a fast-growing cloud data company. Berkshire also reduced its stakes in Capital One and Chevron, signaling a broader rebalancing strategy toward safer assets.

Should Berkshire Be Your Favorite Stock Too?

With its strong track record, attractive valuation, and strategic portfolio adjustments, Berkshire Hathaway continues to look like a solid investment. The company’s shift toward diversification, reducing exposure to Apple and Bank of America while building cash reserves, positions it well for future opportunities. At the same time, analysts maintain a moderate buy rating on BRK.B, suggesting that the stock remains appealing even after its impressive gains.

Buffett’s favorite stock might not dominate the headlines, but it remains a cornerstone of his success. If you value a company with solid fundamentals, a history of outperformance, and opportunistic management, Berkshire Hathaway could quickly become a favorite in your portfolio, too.