Warren Buffett’s company remains the ultimate defensive megacap stock and deserves strong consideration in investor portfolios. Its Class A stock rose 4% this year, against a 15% negative total return for the S&P 500. That allowed Berkshire to blow past a faltering Tesla (TSLA) and Meta Platforms (META) to rank fifth in the stock market, with a $680 billion market value.
The outlook for 2023 is good. CEO Buffett roused himself from postpandemic lethargy and was an aggressive buyer of stocks this year, including $10 billion of Occidental Petroleum (OXY) and about $20 billion of Chevron (CVX). He also reached a deal to buy property and casualty insurer Alleghany for $12 billion on attractive terms.Those investments will lift earnings, as will the income from Berkshire’s $100 billion of cash now that short rates are up to 4%. Berkshire’s earnings power is running at more than $30 billion annually, thanks to its wide range of businesses, including railroads, insurers, and energy. The stock looks reasonably priced, trading for about 1.4 times estimated year-end 2022 book value, in line with its five-year average.
One risk: Buffett’s longevity as CEO, given that he is 92. He’s irreplaceable, but his departure could benefit shareholders if it results in a dividend and pressures the company to break up.