Is Berkshire Hathaway’s Stock Undervalued?
With the stock market continuing to set record levels and tech stocks such as Apple, Microsoft, and Tesla dominating the headlines, many investors have been overlooking probably the most valuable stock of all: Berkshire Hathaway. Established by legendary investor Warren Buffett in 1964, Berkshire Hathaway has an unequaled track record of over 54 years of outperforming the S&P 500 and its long-term returns are among the highest of any stock in the market.
From its well-publicized insurance businesses such as Geico, to its large and diverse collection of stocks and other investments, Berkshire Hathaway is a behemoth of a company. Given how much value the company represents and its strong performance, it may surprise some to learn that Berkshire Hathaway stock is actually considered to be undervalued by many investors. This article will take a look at whether or not Berkshire Hathaway’s stock is currently undervalued.
Understanding Berkshire Hathaway’s Businesses
Before we take a look at the value of Berkshire Hathaway’s stock, it is important to understand the business itself. Berkshire Hathaway operates in a wide variety of sectors, including insurance, utilities, retail, industrial, and investment management.
The Insurance Business
The insurance business is one of the largest components of Berkshire Hathaway. Through its subsidiaries, Berkshire Hathaway provides personal, business, and homeowner’s insurance. It is also the largest reinsurer in the world.
Berkshire Hathaway’s large and diverse insurance business provides a steady stream of income for the company and has proven to be quite resilient in the face of market volatility.
The Utilities Business
Berkshire Hathaway also has a large presence in the utilities sector, mainly through its subsidiary, Berkshire Hathaway Energy. The company owns and operates a variety of utilities and energy businesses in the U.S. such as electric and gas companies, power plants, and renewable energy projects.
The Retail and Industrial Businesses
Berkshire Hathaway also has a presence in the retail and industrial sectors. Through its subsidiaries, it holds a number of well-known retail brands, such as Duracell, Shaw Industries, and Fruit of the Loom. It also owns a number of industrial companies, such as Precision Castparts and John Deere.
The Investments Business
Berkshire Hathaway is perhaps best known for its investments business, which consists largely of its holdings in publicly traded stocks. These include some of the most well-known companies in the world, such as Apple, Coca Cola, Bank of America, and several others.
Is Berkshire Hathaway’s Stock Undervalued?
Given the size and scale of Berkshire Hathaway’s businesses, it may surprise some to learn that the company’s stock is considered undervalued by many investors. This may be due to the fact that Berkshire Hathaway’s share price has not kept pace with the market’s overall returns in recent years. In other words, the stock is seen as undervalued relative to the company’s overall worth.
However, despite the stock’s recent underperformance, many investors still believe it is undervalued for a number of reasons. These include:
- The Potential of New Investments:
As an investment company, Berkshire Hathaway has the potential to find, make and manage new investments. This could result in higher returns in the future and could help boost the share price.
- The Optimal Portfolio:
The value of Berkshire Hathaway’s investments is not fully reflected in the stock price. The company’s portfolio is diversified and well diversified, with a mix of stocks, bonds, and cash. This provides an optimal level of portfolio and risk management and could lead to higher returns in the future.
- The Steady Cash Flow:
Berkshire Hathaway generates a steady stream of cash flow from its core businesses, namely insurance and utilities. This provides a steady source of revenue for the company and reduces its dependence on stock returns, making the stock investment less risky.
- The Warren Buffett Factor:
The company’s long-term returns are largely due to the steady hand of Warren Buffett, who has been in control for well over 50 years. His experience, insights, and strategies have proven to be very valuable and could continue to drive returns in the future.
Given the size and scale of its businesses, the strong track record it has managed to maintain over the decades, and the potential of new investments, many investors believe Berkshire Hathaway’s stock is currently undervalued. There is no guarantee that the stock will continue to be undervalued, however, and it could soon experience a surge in price. All investors should do their own due diligence before making any investment decisions.
