Is Berkshire Hathaway heading for $ 1,000 billion?

Wall Street remained somewhat choppy on Wednesday morning as investors remained divided in their views on the prospects for various industries within the stock market. Starting at 10 a.m.ET, the Dow Jones Industrial Average (DJINDICES: ^ DJI) rose 18 points to 36,817 which would be a new record if he keeps those gains. However, the S&P 500 (SNPINDEX: ^ GSPC) had lost 3 points to 4,791, and the Nasdaq composite (NASDAQINDEX: ^ IXIC) had lost 67 points to 15,555.

Evidence of a market rotation continues to mount, and one of the clearest signs of the possible rise in value investing has come from Omaha, Nebraska. Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) shares rose another 2% on Wednesday morning, taking its gains in the first two and a half trading days of the year to nearly 5% and representing a record price level for Warren Buffett’s company. Given the gains from other stocks, some investors are wondering if Berkshire could finally find its way into the $ 1,000 billion market cap club sometime in 2022.

Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.

A few difficult years

Some Berkshire Hathaway investors have been disappointed with the stock’s performance in recent years. The continued investor preference for higher growth companies contributed to the underperformance of the Berkshire stock, with a total return of 91% in the last five years behind the 130% of the S&P 500.

Berkshire has also had its share of mistakes. Buffett’s decision to sell airline stocks near their March and April 2020 lows was the subject of much criticism, as it appeared to resemble a panic-triggered sell off and was quickly followed by a rebound. massive in the airline industry. Meanwhile, the stock didn’t appear to be getting much credit for Berkshire’s massive holding in shares of Apple, which exploded during the period.

Growth investors are also wondering why Berkshire is keeping so much cash on hand. Even with growing buybacks of its own shares by the company, Berkshire had nearly $ 150 billion in cash on its balance sheet at the time of its last quarterly report. This marginal money, which brought in almost nothing, was undoubtedly a major obstacle to the potential return on investments.

See the value

More recently, however, investors have seemed to recognize the intrinsic value of Berkshire companies. 100% -owned companies in areas like energy and transportation are starting to show signs of strength, and although Buffett has significantly reduced his exposure to the banking sector, Berkshire’s holdings are benefiting from the prospect of rising rates. long-term interest that could support the net interest. Income.

Perhaps more importantly, many shareholders see Berkshire as a counter-trend game that offers portfolio diversification when combined with higher growth stocks. Despite a few recent buyouts of positions in companies such as data warehousing specialists Snowflake, Buffett’s conservative style will likely remain in place at Berkshire even after he is no longer able to run the business.

Are $ 1 trillion within reach?

Berkshire’s market cap has just passed the $ 700 billion mark, so it would take a gain of over 40% from here to hit $ 1,000 billion. This is a tall order for Berkshire in 2022, even after years of underperformance. However, some of the trends that created strong headwinds for the insurance conglomerate appear to be shifting, and this suggests that even if that doesn’t happen this year, Berkshire could muster the earnings needed to join the trillion club. dollars before also much longer.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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