Berkshire Hathaway (B) Inc. - Stocks

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Berkshire Hathaway is a renowned and prominent American holding company that is led by world-famous investor Warren Buffet. The investment portfolio of Berkshire Hathaway consists of 10 of the biggest business companies in the USA and the world. Berkshire Hathaway includes stocks of many global companies that are publicly traded and the public market equity of Berkshire Hathaway is worth more than $243 billion.

The 10 big companies included in the portfolio of Berkshire Hathaway are Coca Cola, Bank of America, Apple, American Express, Wells Fargo, Kraft Heinz Co, JP Morgan Chase & Co, Moody’s Corporation, Bank of New York Mellon Corp, and US Bancorp. The portfolio index value of Berkshire Hathaway is a result of the impact of all the shares of its companies, and the shares are equally weighted.

Berkshire Hathaway has several subsidiaries that perform business in nearly every segment of the market, such as insurance, consumer goods, freight rail transportation, and utility business. Berkshire Hathaway was founded in 1889, and its head office is in Omaha, Nebraska.

The famous companies that Berkshire Hathaway solely owns more than 60 big and small companies and some of the notable ones are GEICO, Dairy Queen, NetJets, Fruit of the Loom, Long & Foster, BNSF, Duracell, and Forest Chef. Berkshire Hathaway also owns major stakes in a famous global brands such as Coca Cola (9.32%), Kraft Heinz Company (26.7%), Apple (5.4%), American Express (17.6%), and Bank of America (11.5%).

One of the major force behind the massive success and popularity of Berkshire Hathaway is the leadership and management skills of Warren Buffet who is Chairman and Chief Executive of the company. Warren Buffet is supported by Charlie Munger who is Vice Chairman of Berkshire Hathaway. The success of the company lies in making long term investment in publicly traded companies that have huge market capitalization.

Forbes Global 2000 listed Berkshire Hathaway as the 8th largest public company in the world, the largest financial services company according to revenue, and 10th biggest conglomerate based on revenue. Berkshire Hathaway has over 391,500 employees and owns and manages a diverse range of businesses such as retail, housing, insurance, confectionary products, jewelry, railroad system, energy resources, publishing, and home furnishings.

Warren Buffet, the CEO of Berkshire Hathaway, is acknowledged as the world’s most successful investor and an established business tycoon, and philanthropist. Warren Buffet is the fourth richest person in the world with a net worth of $71.8 billion.

History of Berkshire Hathaway

Berkshire Hathaway began in 1889 and originally in textiles, and the company was incorporated as Berkshire Cotton Manufacturing Company in Massachusetts in 1889. In 1929, many textiles manufacturers that included Valley Falls Company, Greylock Mills, Coventry Company, and Fort Dummer Mills combined to form one company (Berkshire Fine Spinning Associates) that would contribute to 25% of cotton production in the US.

In 1955, the Berkshire Fine Spinning merged with another textile producer called Hathaway Manufacturing Company, which resulted in Berkshire Hathaway that had 10000 employees and massive plant space which was more than six million square feet. The initial performance was not profitable, and the company faced many troubles, but from 1959 to 1960, the company started to streamline its work.

However, in 1961, Berkshire Hathaway again slumped and had to close down three of its plants and reduced its workforce. The shift in economic health came in 1965 when investor Warren Buffet purchased adequate stocks to take control of the company. However, a dispute broke out between and Buffet and then Berkshire president Seabury Stanton. Kenneth V. Chace who was vice president, replaced Stanton. Buffet got control of the company and operations moved to Omaha, Nebraska. Berkshire Hathaway posted profitability in 1655 and 1966, but profits fell later in 1966.

Berkshire Hathaway was quite active in acquisitions to diversify its portfolio and bought National Fire & Marine Company along with National Indemnity Company for $8.5 million, both the companies worked in auto insurance. In 1968, Sun Newspaper was acquired, and in 1969, Illinois National Bank and Trust Company of Rockford was bought. Buffet gained success as a formidable investor and became Chairman of Berkshire Hathaway Inc. in 1969.

The acquisitions continued through the 1970s, and one of the major development was making equity stake in GEICO (Government Employees Insurance Company) which today, is still the main contributor of revenue to the company. In 1985, the last of textile business of Berkshire Hathaway was closed down.

Berkshire Hathaway started acquiring majority of stakes in US-based airlines that included Delta Airlines, United Airlines, American Airlines, and Southwest Airlines, but all of the airline holdings were sold off in early 2020 as travel industry plummeted due to Coronavirus outbreak.

Berkshire Hathaway has two classes when it comes to stocks ‘Share A’ and ‘Share B’. The Class A shares of Berkshire Hathaway are regarded as the most expensive share and are priced around $300,000, and its expensive value is because there has never been a split in Class A shares. The Class B shares of Berkshire Hathaway make the 8th largest component on the S&P 500 Index.

Current Business and Investment of Berkshire Hathaway

Berkshire Hathaway works as a holding company and the subsidiaries it owns perform numerous business activities. The unique feature is that the company works on a decentralized basis which means that there is no central HR (Human Resource), Procurement. Sales or Marketing department. The management team has little say in the internal matters of its subsidiaries. But, the senior management team do take decisions on capital allocation, and implementation of investment strategies.

The insurance segment of the company includes GEICO (Government Employees Insurance Company), General Re-Corporation, Berkshire Hathaway Primary Group, and Berkshire Hathaway Reinsurance Group. GEICO is one of the most significant subsidiaries of Berkshire Hathaway that provides property, casualty, and auto insurance.

The Burlington Northern Santé Fe, LLC operates the railroad network in North America. The Berkshire Hathaway Energy not only generates, transmits and distribute energy but also regulates the electric and gas services. The McLane Company does the wholesale distribution of non-food items and groceries. Apart from the main segments, Berkshire Hathaway engages in

• Manufacturing services (producing consumer, industrial, and building products) such as confectionary items, chemicals, metal cutting tools, recreational vehicles, masonry products, flooring, insulation, paints and coatings, apparel, alkaline batteries, and custom picture framing products.
• Service and retailing includes several retailing businesses (restaurants, automobiles, furniture, household appliances, consumer electronics, bedding, jewelry, watches, and gifts) along with Aviation pilot training, and fractional aircraft ownership programs.
• Manufactured houses and finance business that comprises of consumer financing, manufacturing and leasing, and furniture leasing.

Risk and Potential in Berkshire Hathaway Business Environment

Berkshire Hathaway has a diversified portfolio and its subsidiaries function in various business segments. The essential component of Berkshire Hathaway is GEICO which provides property and casualty insurance. Berkshire Hathaway is a global brand in financial and banking services. SWOT analysis is a popular strategic tool that allows companies to examine their current performance and future growth prospects. The SWOT analysis of Berkshire Hathaway is given by

• Strengths

Throughout its business history, Berkshire Hathaway has achieved success and profitability due to timely and correct financial judgement of Warren Buffet. Recently, he invested in Apple and Amazon, which are two of the biggest business companies and first to reach 1 trillion in market capitalization. Apart from Apple, and Amazon, the company has invested in diverse companies such as Coca Cola, American Express, Bank of America, and Wells Fargo. Berkshire Hathaway has strong financial growth and efficiently runs the insurance business, freight transportation, and energy production and distribution in North America.

• Weaknesses

Berkshire Hathaway heavily depends on the decision and vision of Warren Buffet and other senior personnel. Warren Buffet himself talks about not timely listening to advisors and doing a few mistakes while investing; otherwise, the company would have been more successful and profitable. Not all acquisitions were successful, and investment in Apple and Amazon was done just a few years ago due to technology boom.

• Opportunities

Berkshire Hathaway has the right model and strategy to acquire new businesses and grow. Investment in emerging Asian markets will allow the company to grow quickly. The company should invest more in technology brands as they have grown and profited the most in the recent expansion of the digital age.

• Threats

Berkshire Hathaway faces challenges due to changing government rules and regulations and financial crisis such as recession. There are higher operational and compliance costs that can impact overall earnings and revenue. Berkshire Hathaway main source of revenue is its insurance business that has faced losses in recent years, and it also faces competition in this segment from AIG, Allianz, Metlife, AON, and Delphi Financial Group.

Stock Analysis of Berkshire Hathaway

Berkshire Hathaway is listed and actively trades on the New York Stock Exchange (NYSE) with the ticker symbols ‘BRK-A’ for Class A-Shares and ‘BRK-B’ for Class B-Shares. The company is listed under the ‘Finance’ Sector, and the industry is ‘Multi-Line Insurance’.

For the fiscal year of 2019, Berkshire Hathaway posted revenue of $254.6 billion, earnings worth $81.4 billion, and an increase of 2.7% as compared to the previous year. Warren Buffet is known globally for his financial acumen, and every novice and the experienced investor would like to share the success that his company achieves. Berkshire Hathaway is a conglomerate that not only solely owns and runs GEICO, Dairy Queen, BNSF, Duracell, and Fruit of the Loom but has major stakes in most of the top multinational brands such as Coca Cola, Apple, Amazon, and American Express.

In recent years, Warren Buffet invested heavily in airlines of America which included Delta Airlines, United Airlines, American Airlines, and Southwest Airlines but this move was not profitable and shares were sold off due to Coronavirus pandemic that affected the airline industry the most due to travel restrictions domestically and internationally.

The business of Berkshire Hathaway and its subsidiaries has been hit hard due to Covid-19 pandemic that has forced the businesses to close down temporarily, and people have been asked to remain indoors and practice social distancing. The revenue and sales for GEICO, BNSF, Dairy Queen, and Pampered Chef are impacted by the Coronavirus. In the first quarter of 2020, the estimates were not fully achieved, but the EPS rose 7% to $2.41 but expected was $2.51, revenue was up 1% at $651.3 billion. However, the investors may want to wait for the Coronavirus situation to settle and analyze its economic impact before investing in Berkshire Hathaway.

The information above is for education purposes only and cannot be considered as investment advice. Past performance is not reliable indicator of future results.