Berkshire Hathaway (NYSE: $BRK) is a colossal conglomerate headquartered in Omaha, Nebraska. Led by Warren Buffett, it owns a wide range of businesses in industries like insurance, railroads, energy, manufacturing, and retail. Some of its famous subsidiaries include GEICO, Duracell, Dairy Queen, and Fruit of the Loom. Berkshire Hathaway also holds significant stakes in public companies like Apple and Coca-Cola.
On May 4, 2024, Berkshire Hathaway Inc. reported stellar first-quarter earnings and a substantial increase in its cash holdings.
Berkshire Hathaway’s Q1 Financial Highlights
Berkshire Hathaway reported a remarkable 39% surge in operating earnings, reaching an impressive $11.22 billion in the first quarter of 2024. This significant growth was primarily driven by strong insurance and investment income gains, marking a substantial increase from the previous year’s figure of $8.065 billion.
Investment losses totaling approximately $9.7 billion, and gains amounting to around $23.4 billion. The company reported after-tax realized gains from investment sales of $11.2 billion. Consequently, net earnings attributed to Berkshire shareholders decreased to $12.702 billion from $35.504 billion a year ago.
The insurance sector emerged as a standout performer, with underwriting earnings soaring to $2.59 billion, marking an impressive 185% year-on-year increase. Additionally, Berkshire Hathaway Energy reported first-quarter earnings of $717 million, while other controlled businesses contributed $3.088 billion.
The conglomerate’s cash reserves also hit a record high of $188.99 billion, signaling robust financial health and strategic flexibility.
Berkshire Names Greg Abel Successor
At Berkshire Hathaway’s annual gathering on Saturday, Warren Buffett took the stage without his longtime partner, Charlie Munger, who passed away in November 2023. Buffett named Vice Chairman of Non-Insurance Operations Greg Abel as the Berkshire CEO successor, stating that investors “don’t have too long to wait” for the succession plan to unfold.
“Greg has to tell the directors about what should be done if anything happens to him. And that’s not an easy thing to do,” Buffett said. Abel and Ajit Jain have taken on increasingly public roles in recent years and are groomed as potential successors to the investing icon.
Furthermore, Buffett praised Jain’s contributions, stating that his insurance operation will keep Berkshire ahead of its competitors even after Jain’s departure. Jain acknowledged the importance of succession planning, emphasizing the board’s awareness of the issue at both his and Buffett’s levels.
Trimming the Apple Stake
In a move that caught the attention of investors, Berkshire Hathaway trimmed its stake in Apple Inc. by 13% during the first quarter. However, the iPhone maker remained Berkshire’s largest stock holding, with a value of $135.4 billion, implying around 790 million shares.
When asked about the rationale behind the stake reduction, Buffett suggested it was partly due to tax reasons following significant gains on the investment. He also hinted at the potential for higher tax rates in the future, which could impact Berkshire’s holdings.
“It doesn’t bother me in the least to write that check, and I would really hope with all that America’s done for all of you, it shouldn’t bother you that we do it and if I’m doing it at 21% this year and we’re doing it a little higher percentage later on, I don’t think you’ll actually mind the fact that we sold a little Apple this year,” Buffett said at the annual meeting.
The Oracle of Omaha reiterated his bullishness on Apple, declaring it an “even better business” than stalwarts like American Express and Coca-Cola, both long-term Berkshire holdings.
Cautious Approach to Generative AI
During the annual meeting, Buffett shared his thoughts on the rapidly evolving field of generative artificial intelligence (AI). While acknowledging the technology’s potential, he expressed concerns about its potential for misuse, likening it to nuclear weapons.
“When you think about the potential for scamming people, if you can reproduce images that I can’t even tell, that say, ‘I need money,’ as your daughter, ‘I just had a car crash, I need $50,000 wired.’ I mean, scamming has always been part of the American scene, but this would make me, if I was interested in investing in scamming, it’s going to be the growth industry of all time,” he warned.
However, Buffett acknowledged his limited understanding of the technology, stating, “I don’t know anything about AI.”
Renewable Energy Investments
On the topic of renewable energy, Buffett acknowledged the time-consuming nature of developing such technologies. “There are certain things that just take a certain amount of time,” he said, adding that solar energy is unlikely to become the sole electricity source.
Greg Abel, chair of Berkshire’s energy business, emphasized the importance of reliability and affordability in the renewable energy sector.
Buffett’s Focus: U.S. Investments and Canada
Buffett reaffirmed his commitment to investing primarily in the United States, citing his deep understanding of the country’s strengths and weaknesses.
“You won’t find us making a lot of investments outside of the United States, though we’re participating through these companies in the world economy,” Buffett stated. “I understand the United States rules, weaknesses [and] strengths…. I don’t have the same feeling generally around the world. And the lucky thing this is that I don’t have to.”
However, he did express confidence in Canada as an investment destination, hinting at a potential opportunity being evaluated there. “We do not feel uncomfortable in any shape or form putting our money into Canada,” he said, praising the country’s major economy and financial and commodity industries.
However, Buffett remained tight-lipped about the specific details of the potential investment, leaving investors to speculate about Berkshire’s next move.
Berkshire Hathaway Stock Update
BRK/B shares saw a marginal uptick of 0.07% on May 3, closing at $400.87 from the prior day’s close of $400.60. After-hours trading saw a further increase of 0.23%, bringing the price to $401.80. The stock has seen a 23.77% growth over the past year and a 12.40% increase since the start of 2024.
BRK/B concluded the trading session below its 50-day Moving Average of $408.34 but remained above its 200-day Moving Average of $372.29. The stock’s 52 52-week high stands at $430.00, with a 52 52-week low of $317.71. As of April 15, 2024, the Short Interest for BRK/B was reported at 10.69 million shares, representing a change of 3.63%. Additionally, the Short Interest accounts for approximately 0.82% of the float.
Berkshire Hathaway: Analyst Insights
Cathy Seifert, a senior vice president at CFRA, has recommended buying Berkshire shares. Her 12-month price target is $472, implying an 18% potential increase from Thursday’s closing price of $400.60 per share. Overall, Wall Street analysts view Berkshire Hathaway B stock favorably, offering moderate buy ratings. The average price target is $443.00, with forecasts ranging from a high of $481.00 to a low of $405.00. This average projection implies a 10.51% change from the current price of $400.87.
Should You Buy Berkshire Hathaway Stock?
Berkshire Hathaway’s stellar Q1 performance, bolstered by robust earnings and strategic moves, solidified its position as an investment powerhouse. The naming of Greg Abel as Buffett’s successor clarified the company’s future leadership, while Buffett’s cautious stance on generative AI highlighted his pragmatic approach.
Despite trimming its Apple stake, Berkshire remained bullish on the tech giant. With a strong cash reserve, favorable analyst ratings, and a keen eye on renewable energy and international opportunities, Berkshire Hathaway continues reinforcing its status as a formidable force in the investment landscape.
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