Warren Buffett went shopping in the stock market in the first quarter when
bought back $51 billion of stock, a quarterly record for the company.
Investors will be interested to see if Berkshire Hathaway (ticker: BRK/A , BRK/B ) took advantage of the stock market’s second-quarter slump to add to its $390 billion equity portfolio. The numbers should be available, along with details that can help investors assess the stock’s valuation, when Berkshire reports its second-quarter results on Aug. 6.
If Berkshire added to its massive stake
(AAPL) during the period will also attract a lot of attention. Berkshire, led by Buffett, bought about three million shares of the iPhone maker in the first quarter, when the stock fell to $150. The stock traded as high as $130 in the second quarter, giving Buffett a potential opportunity to add to Berkshire’s largest equity investment.
Berkshire owned 911 million Apple shares at the end of the first quarter, a stake now worth about $148 billion with Apple recently trading at $162. Berkshire’s total purchases and sales of equity and Apple investment will be disclosed in Berkshire’s quarterly 10-Q filing, which is usually available at the same time as the company’s earnings announcement.
Berkshire added to its stake
(OXY) in the second quarter and now owns about $12 billion of the energy company, Berkshire filings show.
The group has ample funds to buy back shares, given that it had $106 billion in cash and cash equivalents on its balance sheet as of March 31. Stock purchases exceeded sales by about $41 billion in the first quarter, which reduced its cash balance from about $147 billion at the end of 2021.
Berkshire’s Class A shares, now at $451,700, are nearly flat this year, outpacing
which is a discount of around 13%. Berkshire shares, however, are down 17% from a record high of $544,000 in late March. Berkshire’s Class B shares are trading at $300.60.
Wall Street will also focus on Berkshire’s stock buybacks, which have slowed this year from a brisk pace in 2021.
Berkshire bought back $3.2 billion in shares in the first quarter. The total was likely $1 billion to $2 billion in the second quarter through mid-June, based on a Barron’s calculation that came from a deposition by Buffett about his stake in the company after he made his large annual charitable contributions. Berkshire will disclose the full quarter’s acquisitions as part of its earnings release.
During 2021, Berkshire bought back its shares at a rate of about $7 billion a quarter. Buffett is price conscious. the company did not buy back shares in April when the stock was near year-to-date highs, he said at Berkshire’s annual meeting on April 30.
Investors are interested in Berkshire’s acquisitions as an indication of whether Buffett views the stock as undervalued. During the first quarter, Buffett felt there were better opportunities in the stock market.
Berkshire’s earnings also matter, although investors don’t pay much attention to quarterly results because Buffett regularly says to look at earnings over a longer period of time. Operating earnings are expected to have risen about 25% to $5,393 per Class A share in the second quarter. Investors will be on the lookout for any weakening of Berkshire’s housing-related businesses and any commentary the company offers about the economy.
The company is likely to post a loss in the second quarter due to the stock market slump, which has pressured Berkshire’s massive stock portfolio. Portfolio gains and losses on the portfolio, which totaled $390 billion as of March 31, flow through Berkshire’s income statement.
The decline in the stock portfolio likely also meant a decline in Berkshire’s equity, or book value, in the second quarter. Edward Jones analyst James Shanahan estimated Berkshire’s June 30 book was about $316,500, down 8 percent from about $345,000 on March 31. Shanahan estimates the book value will be about $342,000 on Sept. 30 based on the recent value of the stock portfolio.
Berkshire’s stock trades for 1.4 times estimated June 30 book value and 1.3 times projected September 30 book value, but the latter is the more relevant price. The price-to-book ratio has averaged 1.4x over the past few years, suggesting that Berkshire’s stock is now undervalued.
Write to Andrew Bary at firstname.lastname@example.org