Berkshire Hathaway Stock: Value and Momentum in One

Shares of Warren Buffett’s famous conglomerate Berkshire Hathaway (BRK.A) (BRK.B) clearly did not get the memo that stock markets were supposed to correct in the first quarter. Indeed, the behemoth continued its ascent, little rattled by the broader market volatility that spread from the tech-heavy Nasdaq 100 to the value-heavy S&P 500.

After many years of falling short of the market, Berkshire sure made a statement in the first quarter of 2022. Value always matters at the end of the day when the punch bowl is taken away from euphoric investors who never want or expect the party to come to an end.

Year-to-date, Berkshire Hathaway’s B shares are up almost 17%. Meanwhile, the S&P 500 and Nasdaq 100 are down around 4.5% and 8% year-to-date. I think it’s safe to say that the loud-mouthed critics of Warren Buffett and Berkshire Hathaway have now finally been silenced.

Indeed, Berkshire has noted time and time again the lack of bargains in the markets over the past year and a half. Warren Buffett wasn’t just talking the talk. He was walking the walk, with relatively minimal buying, as Berkshire’s cash hoard swelled to record levels, even as inflation began to heat up.

Berkshire Hathaway is Finally Starting to See Bargains in the Market

After a rough start in 2022, Buffett has been busy with the recent acquisition of Alleghany (Y), an insurance and holding company that many investors may never have heard of before Berkshire’s acquisition announcement.

The insurer cost Berkshire $11.6 billion, marking one of the biggest deals made by Berkshire in many years. Undoubtedly, Alleghany was the elephant that investors were waiting for, and the deal has been met with applause by patient Berkshire shareholders.

Even at the acquisition price, Alleghany reeks of value, with its mere 11.45 times trailing earnings multiple and mere one times sales multiple. With rates looking up in America, things may also be looking up for Alleghany.

I think the deal is a stroke of genius, given that shares of Alleghany had struggled to recover from the 2020 coronavirus stock market crash. In the hands of Berkshire’s magnificent managers, investors have to lot to get excited about with Alleghany.

Warren Buffett Bets Big on Occidental

It wasn’t just Alleghany that caught the Oracle of Omaha’s eye of late. Berkshire has made big bets on Occidental Petroleum (OXY). After another ~$1 billion helping of OXY shares, Berkshire now owns a nearly 15% stake in the company amid the unprecedented surge in oil prices.

When Berkshire spots value, it gets aggressive. Now, whether Berkshire is looking to acquire Occidental wholly remains to be seen. Regardless, it’s hard to deny the value the firm sees in a company that fellow billionaire investor Carl Icahn recently exited.

One billionaire investor’s sale is another billionaire investor’s treasure?

After more than doubling over the past year alone, it’s pretty shocking to see Berkshire aggressively accumulating OXY shares, especially given that Warren Buffett’s past oil endeavors have been met with mixed success.

While it’s virtually impossible to predict where oil prices will head next after their unprecedented surge past US$100 over Russia’s invasion of Ukraine, there’s no denying the operational effectiveness of Occidental. It’s not just another random play in the oil patch that could take a hit to the chin when the next pullback in the cyclical energy space comes.

Of course, even superior operating economic won’t spare a firm like Occidental from potential wreckage if oil were to fall as it did in the first half of 2020. In any case, commodities exposure seems wise at this juncture, even if an oil pullback were to strike.

Fossil fuels and other commodity producers can be great portfolio diversifiers for inflationary times. Further, a well-run energy company seems like a terrific hedge for those who fear a drastic worsening of the crisis unfolding in Ukraine.

Things are ugly, and they could get uglier. With the recent destruction of an oil refinery and infrastructure in Odesa, the demand for local energy could continue to be robust. Take Russian oil export cuts into consideration, and Berkshire’s big OXY bet starts to make a lot of sense.

Energy plays can be speculative, but they can also act as great diversifiers and hedges against certain geopolitical risks. Given the modest valuation, it’s not a mystery as to why Buffett and Berkshire have grown their stake in Occidental Petroleum such that it’s now one of the top 10 holdings in Berkshire’s portfolio of publicly-traded companies.

Wall Street’s Take

Turning to Wall Street, BRK.B stock comes in as a Moderate Buy. Out of one analyst rating, there is one Buy recommendation.

Berkshire Hathaway’s price target is $364, implying an upside potential of 4.7%.

The Bottom Line on Berkshire Hathaway Stock

The Oracle of Omaha has been making all the right moves of late. Berkshire has certainly made up for the lack of buying during the 2020 market crash.

Whether we’re talking about the quick (and very lucky) gain in Activision Blizzard (ATVI), the big bet in Occidental, or the elephant-sized deal in Alleghany, I think it’s safe to say the Berkshire of old, the one investors admire, is back.

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