A Stock worth holding through Market Crashes
A company with a one year return of 45.78%
1. Company Background - Berkshire Hathaway (NYSE: BRK.B)
Berkshire Hathaway Holdings is an American multinational conglomerate holding company and founded back in the year 1839. Warren Buffet later took control of the company in 1965 after the merger in 1955. Berkshire Hathaway is a founder-led company with the CEO making most of its investment decisions. Buffet is known to conduct savvy investment with great insights and favourites long term buy-and-hold strategy. Berkshire Hathaway Inc. Class B has a current market cap of USD668.14b.
One of the key reasons to purchase Berkshire is its insurance business. Berkshire has insurance units collecting premium upfront when an investment is made and, doesn’t require claim repayment until later. As Berkshire’s insurance business grows, the capacity to expand its portfolio grows alongside it as well. Secondly, given the rally, unlike the S&P, Berkshire is undervalued as compared to the index. This poses as a buying opportunity for individuals to invest in a company where they prioritise long-term investment.
Berkshire Hathaway has a very diversified business and, much of its values lie in the stocks they own. The top five holdings consist of Apple, Bank of America, Coca-cola, American Express and Verizon Communications.
2. Economy Moat
Given the diversification, Berkshire owns multiple businesses where they generate a lot of cash individually. With the available capital, it is then again reinvested into various companies. Given the financial stability, should there be any correction, Berkshire is unlikely to be affected as much as other companies. Comparing Berkshire and the S&P500, since the 1960s, Berkshire has a return of 20% compounded annual growth rate while the index only at 10.2%. This stability proves its attractiveness given the current rise in inflation.
3. Financials
Berkshire may seem to have slowdown given the low compounded annual revenue growth in the past five years at 2.68%. However, the net income has a 12.05% compounded annual growth rate within the same period. Their margin has shown us that the company is moving in the right direction regarding its financial management. Berkshire has a return on equity (ROE) of approximately 25.37%. With margins improving, we can expect further stability growth from Berkshire. Their price to earnings ratio is currently below its five-year average.
4. Risk
Warren Buffet is 90 years old and his partner, Charlie Munger, is 97 years of age. They have built and guided the company throughout its tenure.
5. Conclusion
Despite the key man risk, Buffet has assured investors concerning his succession plans. Greg Abel, CEO of Berkshire Hathaway Energy, and vice-chairman of non-insurance operations of Berkshire Hathaway will be succeeding Buffet. The portfolio that Berkshire has constructed has a strong foundation in terms of its outlook. Overall, Berkshire is a company with strong fundamentals consisting of stable growth factor, a great addition to balance any portfolios.
