Berkshire Hathaway is still a buy

Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) held its annual meeting in Omaha last Saturday. Of course, Berkshire meetings are always filled with many takeaways and insights from Buffett, who is often referred to as the “Oracle of Omaha” for his successful investment efforts.

Saturday’s meeting also featured first-quarter earnings reports from large companies, which showed somewhat mixed results. While it was a good earnings report overall, the final numbers may seem to suggest otherwise, which may have confused some investors as Berkshire stock was quite volatile on Monday morning. Let’s take a look at the results.

Rapid increase in operating profit

Berkshire Hathaway’s earnings aren’t always indicative of the company’s performance, so you need to read between, around, and across the earnings. The world’s 8th largest company by market capitalization is a large conglomerate that holds a stock portfolio worth $370 billion and owns approximately 41 companies across various industries, including insurance, retail, construction, transportation, utilities, energy, manufacturing, and railroads. no see. , Others. Most of them are famous brands such as GEICO, Dairy Queen, and Duracell.

Therefore, Berkshire’s stock portfolio often distorts net income results in a given quarter because portfolio gains are included even though losses or gains have not been realized. This means that stocks in a company’s portfolio have not been sold and therefore represent a temporary loss or gain.

The portfolio’s performance in the first quarter was significantly worse than in the first quarter of 2023. So Berkshire Hathaway only had $1.5 billion in unrealized investment gains in the first quarter, compared to the explosive results reported in the first quarter of 2023. It generated $27.4 billion in unrealized stock market gains.

Over time, the Berkshire Hathaway stock portfolio has averaged annual returns of about 20%, so we can’t place too much emphasis on quarterly or annual fluctuations.

What can be measured is the operating profit of businesses owned by large corporations, and those numbers have been very good. Berkshire Hathaway’s operating profit increased 38% year-over-year to $11.2 billion and revenue of $89.9 billion, up 5%. The Group recorded significant increases in its insurance holdings and energy business, which had a positive impact on its overall performance. Insurance underwriting was particularly strong, with revenue of $2.6 billion, up from $911 million in the first quarter of 2023.

Berkshire Hathaway’s bottom line doesn’t look good, with net income down 64% year-over-year to $12.7 billion, or about $5.88 per share. It was actually a good quarter for the company, as it topped both revenue and operating profit estimates.

But Berkshire’s stock initially rose Monday, then fell into the red, then rebounded as investors tried to figure out where the company would position itself for the end of 2023.

record amount of cash

In the first quarter, Berkshire Hathaway increased its cash to an all-time high, from $167 billion at the end of the fourth quarter to about $189 billion. This reflects strong earnings and the fact that the company did not make any major investments in the quarter.

“We haven’t seen anything that makes sense,” Buffett said at the annual meeting, according to Yahoo Finance.

In fact, during a question-and-answer session at the annual meeting, Buffett said the company had trimmed its largest position in Apple (NASDAQ:AAPL) and sold all of its shares in Paramount Global (NASDAQ:PARA).

According to CNBC, Berkshire reduced its stake in Apple by about 13%. In the case of Paramount, which has suffered greatly amid heated merger discussions, Buffett took responsibility for poor investments.

“It was 100% my decision,” Buffett said of Paramount. “I lost money and did it all on my own.”

More details about Berkshire Hathaway’s portfolio moves will be revealed when it releases its 13F filing later this month.

There are always lots of questions after Berkshire Hathaway’s annual meeting, and we’ll have more to say about them. But don’t worry too much about quarterly results. Still a good buy.