The Strength of Berkshire Hathaway
The recent passing of Berkshire Hathaway Vice Chairman Charlie Munger at the age of 99 has called attention to the key-man risk at the company. With the incomparable Warren Buffett, now 93, impossible to replace, the concern is valid. However, Buffett has taken steps to position Berkshire Hathaway for continued success even without him at the helm. As a result, the stock is projected to perform well in 2024.
A Secure Balance Sheet
CEO Warren Buffett refers to Berkshire Hathaway’s balance sheet as a “Fort Knox” due to its impressive cash reserve of over $150 billion. This amount represents about 20% of the company’s market value. Additionally, Berkshire Hathaway’s after-tax operating profits have seen significant growth, currently up nearly 20% in 2023. There is a possibility that they could reach $40 billion this year. This growth can be attributed to higher interest income generated by the cash reserve and strong insurance underwriting results, driven by a turnaround at Geico. Furthermore, Berkshire’s equity portfolio, led by Apple, has had a remarkable year.
Berkshire Hathaway’s stock is reasonably priced, with a valuation of 1.4 times the estimated year-end 2023 book value and approximately 18 times next year’s projected earnings. In terms of investment options, the Class B shares, priced at $356, present a 2% discount compared to the Class A stock and appear to be the better choice.
According to Brian Meredith, an analyst at UBS, Berkshire Hathaway shares are an attractive investment option amid an uncertain macro environment. In his recent note, he estimates the intrinsic value of each Class A share to be around $600,000 and sets a price target of $620,000. This target exceeds the recent stock price of $545,000.
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