Berkshire Hathaway stock reached a new all-time high on Wednesday, much to the delight of the company’s loyal investors. Despite trailing behind the S&P 500 index in 2023, shares have seen a significant boost.
Rising Stock Prices
In recent trading, Berkshire’s Class A stock rose by 1% to reach $570,000, while the Class B shares also experienced a 1% increase, amounting to $376.08. This latest development surpasses the previous high from September 2023.
Factors Fueling Berkshire’s Success
Numerous factors contribute to the current upswing in Berkshire’s stock. Firstly, there have been fresh gains in Apple, which happens to be the company’s largest equity holding. Additionally, the insurance sector has shown strength, further bolstering investor confidence. Lastly, expectations of robust fourth-quarter results have played a role in driving up stock prices.
Upcoming Earnings Report and Shareholder Letter
Investors eagerly await Berkshire’s fourth-quarter earnings report and its annual report, both of which will be released on Feb. 24. Of particular interest is CEO Warren Buffett’s highly anticipated shareholder letter, which is sure to offer valuable insights.
Outperforming Expectations
Berkshire’s Class B shares have achieved a remarkable 5% increase thus far in 2024. This gain is twice as much as the S&P 500’s gain. In 2023, Berkshire trailed behind the S&P 500’s total return of 26.3% by approximately 10 percentage points. Despite this setback, numerous experts have selected Berkshire as a top stock for 2024.
Warren Buffet’s Influence
Warren Buffet holds a substantial stake in Berkshire, approximately 15%, which amounts to an astonishing $123 billion. Over time, Buffet has gradually reduced his interest in the company, primarily by donating shares to the Bill and Melinda Gates Foundation and other philanthropies within the Buffet family. Had Buffet retained all his shares, he would currently own around 475,000 Class A shares, valued at $270 billion.
Stable Ratios and Projected Earnings
Currently, Berkshire is trading at almost 1.5 times our estimate of the company’s book value as of December 31, 2023, which stands at $390,000 per Class A share. This price/book ratio aligns with recent years’ trends. Moreover, the stock is currently trading at approximately 21 times the projected 2024 earnings.
Apple’s Influence on Book Value
As of the end of the third quarter, book value stood at $363,000 per Class A share. However, Apple’s meteoric rise has contributed to an increase in book value since then. In the fourth quarter alone, the stock experienced a 12% increase, bringing it to $192. In 2024, it has continued to climb. Currently, Apple shares are up 0.4% on Wednesday, valued at $196, edging closer to the December peak of almost $200.
Berkshire’s Massive Apple Stake
Berkshire Hathaway, the renowned investment conglomerate, holds a staggering 915 million shares of Apple. This substantial stake amounts to approximately $178 billion, which constitutes roughly half of Berkshire’s equity portfolio. Additionally, Berkshire’s other significant holdings include Coca-Cola, Bank of America, and American Express.
Dominance in Insurance
Berkshire is a dominant player in the global property and casualty insurance industry. Renowned subsidiaries such as Geico (an auto insurer), General Re (a reinsurer), and several other P&C insurers contribute to the conglomerate’s notable presence in this sector.
Insurance stocks have experienced an average rise of around 10% this year. The market’s optimism is fueled by expectations of rate increases and higher investment income due to increased bond yields. In particular, the auto insurance sector has witnessed premium increases of up to 20% in the past year. Insurers strive to counterbalance significantly elevated costs that negatively impacted results in 2022 and 2023.
The Resilience of Progressive
Among auto insurers, Progressive stands out as the best-run company, with its shares appreciating by 13% this year. Recently, the stock surged by 5%, reaching $178 after the release of robust December results. Notably, Progressive is one of the few companies that disclose monthly earnings. In December, Progressive’s combined ratio, a key profitability metric, stood at an impressive 83%. This translates to a profit margin of 17%, surpassing their target of 96%.
Geico’s Triumphs
In recent quarters, Geico, another subsidiary of Berkshire Hathaway, has exhibited improved financial performance. Additionally, Berkshire has benefited from a fortunate lack of major hurricanes in Florida during 2023. Based on comments made by Berkshire’s insurance chief Ajit Jain, it is estimated that the conglomerate stands to profit by a few billion dollars from its Florida policies.
Financial Expectations
According to FactSet, Berkshire’s operating earnings are projected to have risen by approximately 18% to $5,717 per class A share in the fourth quarter. However, UBS analyst Brian Meredith has an even higher estimate, anticipating earnings of about $6.747 per class A share. Looking ahead, Meredith envisions potential earnings of nearly $28,000 per class A share in 2024.
Overall, Berkshire Hathaway continues to demonstrate its remarkable prowess in the insurance and investment spheres.
