When Warren Buffett and his company, Berkshire Hathaway, buy stocks, the market takes notice.
When he retires as the chief executive officer of Berkshire Hathaway (BRK.A 0.06%) (BRK.B -0.00%) in just a few short months, Warren Buffett is likely to go down as the greatest investor of modern times. Buffett will have spent more than six decades at the helm of Berkshire, transforming it into one of the largest conglomerates in the world and making many investors rich in the process.
When Berkshire reports its stock holdings each quarter, investors anxiously await to see what Buffett and his team bought and sold because the Oracle of Omaha has a knack for finding stocks at beaten-down levels that can become big winners. That’s why investors will be interested to meet America’s newest $1 trillion stock that Buffett has poured more than $78 billion into since 2018.
Buffett has always found ways to create value
Once upon a time, investors would have scoffed at the idea of a company reaching a $1 trillion market cap. But today, 10 companies have accomplished such a feat, one being Berkshire Hathaway, which joined the exclusive club in August. And this is the stock that Berkshire has purchased tens of billions of dollars’ worth through share repurchases.
Image source: The Motley Fool.
What’s arguably more impressive about this feat is that Berkshire is the oldest of these leading companies and the only one that’s not a play on tech and artificial intelligence. Berkshire runs several major business divisions. It’s one of the largest property and casualty insurers in the U.S. and owns the insurance giant GEICO. Berkshire also owns the Burlington Northern Santa Fe Railroad, several large energy companies, and a large mortgage business, among others.
Another exciting piece of Berkshire’s business is its $300 billion-plus stock portfolio, in which Berkshire invests its own capital, part of which comes from insurance premiums, into individual stocks. Long-term investments in companies like Coca-Cola, American Express, Bank of America, and Apple have scored major profits for shareholders.
Like any publicly traded company that cares about creating shareholder value, Berkshire has also historically been a large buyer of its own stock. Since 2018, the company has invested more than $78 billion in Berkshire stock, which helps bring down the company’s share count outstanding, giving investors a larger piece of the ownership pie. Here’s how much stock Berkshire has repurchased by year since 2018:
- 2018: $1.3 billion
- 2019: $5 billion
- 2020: $24.7 billion
- 2021: $27.1 billion
- 2022: $7.9 billion
- 2023: $9.2 billion
- 2024: $2.9 billion
- 2025: $0
As you can see above, Berkshire took advantage of a lower stock price in 2020 and 2021, part of which was driven by the pandemic. It was a big bet that has paid off handsomely, with Berkshire’s stock up 132% during the past five years. Good management teams look to repurchase when they think their stock is undervalued. Notably, Berkshire has not been buying its own stock as of late and has been piling up cash, which could be indicative of what Buffett and the rest of management think about Berkshire’s valuation.
Could Berkshire soon relaunch share repurchases?
This is the question on everyone’s mind. Berkshire also hasn’t purchased many other stocks lately, making investors wonder when Berkshire will start buying again. It’s certainly possible that Berkshire will begin to repurchase at least modest amounts of its own stock soon. After getting off to a hot start to the year, news of Buffett’s retirement from the CEO role led to a sell-off, although shares have started to bounce back since August.
BRK.A Price to Tangible Book Value data by YCharts
As you can see above, while Berkshire’s valuation on a price-to-tangible-book-value basis is still higher than the company’s five-year average, it’s not as high as it was earlier this year. Furthermore, with Buffett retiring, new CEO Greg Abel may not have the same luxury as Buffett in terms of sitting on hundreds of billions of dollars in cash. Don’t get me wrong, Abel is more than a capable successor, but no one is going to be able to command the same premium as Buffett.
This may lead Berkshire to be more aggressive when it comes to share repurchases, or the company may even begin rewarding shareholders with a dividend.
American Express is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool has a disclosure policy.