Is Berkshire Hathaway a good long term investment?
With its 3-star rating, we believe Berkshire stock is fairly valued compared with our long-term fair value estimate. We've increased our fair value estimate to $600,000 per Class A share from $555,000 after updating our forecasts for the company's operating businesses and insurance investment portfolio.
In the 58 calendar years from 1965 to 2022 (Berkshire will release its 2023 return calculations soon), Berkshire Hathaway stock appreciated at a 19.8% compound annual growth rate, compared with a 9.9% annualized return for the S&P 500.
It's all about the stock
So there's no reason to expect a dividend to be paid anytime soon, given the level of control and ownership Buffett has at the company. Thus, if you are an investor trying to live off the income you can generate from your portfolio, then Berkshire Hathaway would be a bad option for you.
Berkshire stock is still a long-term buy for this reason
That increase in valuation multiple accounts for part of the stock's positive performance, but only a small part. Over the same period, Berkshire's stock price has risen by around 230%.
According to the latest long-term forecast, Berkshire Hathaway price will hit $500 by the end of 2024 and then $600 by the end of 2026. Berkshire Hathaway will rise to $700 within the year of 2028, $800 in 2029, $900 in 2031, $1000 in 2033 and $1100 in 2035.
Caution, but a lot of respect, too
"We raise our '24 operating revenue growth forecast to 12% to 18% on still-strong insurance pricing and demand, a modest recovery in Berkshire Hathaway's economically sensitive units, partly offset by an easing of investment income growth on lower rates later in 2024."
Between 1965 and 2021, Berkshire compounded its book value at a 20.1% annual clip. That unmatched consistency is why pundits call Berkshire's book value the single best measure of long-term financial performance.
Berkshire's stock performance has generally been solid, increasing at a 9.5% (13.3%) CAGR during 2018-22 (2013-22), compared with a 9.4% (12.6%) average annual return for the S&P 500 TR Index. At the end of June 2023, Berkshire had approximately $166 billion in insurance float.
Warren Buffett on Saturday rejected the idea that Berkshire Hathaway , a sprawling conglomerate he has built over 50 years, has grown so big that it is now too big to fail and requires tighter regulatory oversight.
Class A shares will typically grant more voting rights than other classes. This difference is often only pertinent for shareholders who take an active role in the company. Nevertheless, because of the voting rights, A-shares are often more valuable than B shares.
Is BRK B better than S&P 500?
Berkshire Hathaway Inc. (BRK-B) has a higher volatility of 3.38% compared to SPDR S&P 500 ETF (SPY) at 2.66%. This indicates that BRK-B's price experiences larger fluctuations and is considered to be riskier than SPY based on this measure. The chart below showcases a comparison of their rolling one-month volatility.
Ten Year Stock Price Total Return for Berkshire Hathaway is calculated as follows: Last Close Price [ 411.57 ] / Adj Prior Close Price [ 123.47 ] (-) 1 (=) Total Return [ 233.3% ] Prior price dividend adjustment factor is 1.00.
Berkshire's 18% year-to-date returns top the S&P 500's 7% gain, and the results grow more eye-popping as the time frame extends: Berkshire's 271% return over the last decade and 50,799% surge over the last 40 years smashes the S&P's 232% and 4,213% respective gains, according to FactSet data.
Even the Oracle of Omaha, widely considered one of the most successful investors, has not been able to outperform the booming S&P 500 in recent years. The stock of Warren Buffett's holding company Berkshire Hathaway has nearly equaled the return of the S&P 500 for the past two decades, according to MarketWatch.
Berkshire Hathaway B is holding a Zacks Rank of #2 (Buy) right now. Investors should also note Berkshire Hathaway B's current valuation metrics, including its Forward P/E ratio of 22.16.
Berkshire Hathaway B has a conensus rating of Moderate Buy which is based on 1 buy ratings, 1 hold ratings and 0 sell ratings. The average price target for Berkshire Hathaway B is $441.00. This is based on 2 Wall Streets Analysts 12-month price targets, issued in the past 3 months.
The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #2 (Buy) for Berkshire Hathaway.
Despite being a large, mature, and stable company, Berkshire Hathaway does not pay dividends to its investors. Instead, the company chooses to reinvest retained earnings into new projects, investments, and acquisitions.
The stock is roughly even with the index over the past 20 years with a 9.8% annualized return. That is despite dramatic growth in the company's operating profits and Buffett's coup in buying Apple stock, which is showing a nearly $150 billion gain for Berkshire.
But—and here's the kicker—from 2003 to 2022, a period of 20 years, the S&P 500 delivered a 9.80% compounded annual return while Berkshire came in lower at 9.75%.
What are the risks of investing in Berkshire Hathaway?
It owns a variety of well-known private businesses, such as GEICO, and also has minority interests in public companies, such as Apple. Risks of being a Berkshire investor include issues of regulatory challenges and being a conglomerate, as well as the performance of successors when Warren Buffett retires or dies.
The financial health and growth prospects of BRK. B, demonstrate its potential to perform inline with the market. It currently has a Growth Score of D. Recent price changes and earnings estimate revisions indicate this stock lacks momentum and would be a lackluster choice for momentum investors.
Factors such as changes in interest rates, inflation, and global economic conditions can all impact the company's performance. 2. Limited Dividends: Berkshire Hathaway is not known for paying dividends, which means that investors shouldn't rely on this stock for consistent income.
Berkshire Hathaway is a recession-proof investment
The company owns BNSF Railway, one of North America's largest rail networks with over 32,000 miles. Due to its pipeline assets, the company owns roughly one-fifth of U.S. interstate natural gas transports.
Since 1980, Berkshire shares have beat the broader market over the course of six recessions by a median of 4.41 percentage points. Even more impressive is the stock's performance during bear markets.
