Despite reaching record highs, Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) shares remain a strong investment opportunity.
The company’s extensive holdings in undervalued stocks and non-public investments have the potential for significant appreciation, while its substantial cash reserves provides the flexibility to acquire undervalued businesses at opportune prices. Thus, it is recommended to maintain a Buy position for Berkshire Hathaway, as its growth story is far from over.
Continued Growth Potential for Berkshire Hathaway
Since the publication of our previous bullish article on Berkshire Hathaway in May, the stock has appreciated by ~12% and outperformed the market. The company’s growth story is ongoing, with promising prospects for continued outperformance in the future.
Recent earnings results in Q2 showcased Berkshire Hathaway’s strengths, with the company generating a record operating profit of $10 billion and significant gains from investments and derivatives. The insurance business income also increased, driven by cost reductions and synergies from the Alleghany Corporation acquisition.
The insurance business, in particular, is expected to continue generating solid returns. With the optimization of legacy systems and the rising demand for insurance policies, Berkshire Hathaway is well-positioned to capitalize on the anticipated growth in the global and American insurance markets, creating further opportunities for the company.
In addition to its insurance business, Berkshire Hathaway’s public holdings offer potential for growth. New product launches by Apple (AAPL) have the potential to revive growth, while the production cuts in the oil industry are positive for oil stocks such as Chevron (CVX) and Occidental Petroleum (OXY), which are major holdings in Berkshire Hathaway’s portfolio.
Berkshire Hathaway’s investments in Japanese trading houses and short-term treasuries also have the potential for returns in the coming quarters. As the Japanese economy grows and its inflation stabilizes, the trading houses have the opportunity to maximize profits. Additionally, with a substantial cash reserve, Berkshire Hathaway has the means to enhance its income and acquire undervalued businesses.
In conclusion, Berkshire Hathaway’s growth trajectory is supported by multiple catalysts. Furthermore, its major holdings in companies such as Apple, Bank of America (BAC), Chevron, Coca-Cola (KO), and American Express (AXP) appear undervalued, amplifying the potential for maximizing returns and creating additional shareholder value. With a forward P/E ratio lower than the S&P 500 average, Berkshire Hathaway remains undervalued and presents an attractive upside opportunity.
Considerations and Risks
While Berkshire Hathaway presents significant growth opportunities, certain factors should be taken into account. Rising oil prices, while benefiting oil stocks, impact the overall economy and can lead to less favorable macro conditions that may affect Berkshire Hathaway’s portfolio holdings.
Geopolitical risks, despite decreased direct exposure to China, still exist for Berkshire Hathaway. Dependency on Chinese supply chains and the potential for phone bans in sensitive areas could disrupt operations. Additionally, worsening Sino-American relations may have implications for investments in Japan and other holdings within Berkshire Hathaway’s portfolio.
In summary, Berkshire Hathaway has a strong potential for continued growth, making it an attractive investment despite the risks. Furthermore, Berkshire Hathaway’s current portfolio aligns with the positive outlook for the American economy, which is projected to expand substantially in the near term.