When it comes to investing, finding a stock with a history of success while providing minimal risk is considered the holy grail.
For those looking for a blue chip stock with growth potential, an excellent place to start is with one of the world’s most consistent performers: Berkshire Hathaway.
Berkshire Hathaway was founded in 1839 and had a rich history of success in the financial markets. Warren Buffett took over the company in 1965, and his value investing strategies have been widely accepted as a standard for successful long-term investing. He purchased shares of stocks that he believed were undervalued, earning returns of over 20% per year on average since he took control of Berkshire Hathaway.
Why Invest in Berkshire Hathaway Stock?
Berkshire Hathaway stock is well known for its consistent long-term returns and ability to outperform the market. No other company comes close to the long-term success of Berkshire Hathaway.
For example, in the 57 years from 1965 to 2021, Berkshire Hathaway stock’s value rose 20.1% yearly on average, whereas the S&P 500 only increased 10.5% annually during that time frame. That means if you were to have invested $10,000 in 1965, you would now be looking at $364 million in returns which is a remarkable return on investment.
Additionally, Berkshire Hathaway offers a unique dividend policy. It does not pay out dividends regularly as most other companies do. But it sure loves to collect them. Berkshire collects around $4.7 billion in dividend income from stocks in its portfolio, such as Coca-Cola and Apple.
Here are some of the other benefits of owning Berkshire Hathaway stock:
Diversified group of companies with wide moats
When investing in Berkshire Hathaway, you benefit from the strength and stability of a diversified group of companies with wide moats.
A wide MOAT means the company has the edge over its competitors and can withstand competition and economic downturns. These wide moats provide the safety that other investments may not have. Capital alone can rarely breach a wide moat.
Berkshire Hathaway also has exposure to numerous industries, including financial services, energy, transportation, retail, and more. This gives investors a chance to further diversify their portfolios with a highly reliable and long-term investment. Some notable companies under its umbrella include Geico, Burlington Northern Santa Fe, See’s Candies, and Precision Castparts.
Good hedge against market volatility
The stock market is volatile, and Berkshire Hathaway provides a great hedge against these fluctuations.
The company has consistently outperformed the broader market, with Buffett’s value investing strategies providing a hedge against downturns in the market.
Additionally, Berkshire Hathaway’s conservative approach to investing means it is less likely to be affected by short-term volatility than its competitors.
The size of Berkshire Hathaway
Berkshire Hathaway is the largest company in the United States by assets. It currently hold 53 companies, giving it a strong presence in numerous industries.
This exposes investors to different sectors, allowing them to diversify their portfolios further.
So, by investing in in Berkshire Hathaway, investors gain access to a variety of different companies and industries rather than solely banking on the performance of one particular stock in a single sector.
High cash flow provides a competitive advantage
Berkshire Hathaway has a competitive advantage due to its high cash flow.
Between 2017 and 2021, the company’s free cash flow yield averaged shy of 5%. This allowed it to have more capital than other companies, giving it the necessary financial flexibility and ability to make long-term investments.
It also allows management to reinvest in the business and acquire more companies, gaining further exposure to different industries. Purchasing companies also allows Berkshire Hathaway to use its size and capital to increase the efficiency of a company’s operations, thus improving its profitability.
Invest with Warren Buffett
Perhaps, the number one reason that Berkshire Hathaway is a good investment is that it has Warren Buffett at the helm.
Mr. Buffett is one of the most respected investors in the world, and his wisdom and insight into financial markets have proven invaluable when making investment decisions.
The importance of a strong management team cannot be overstated, and a leader like Warren Buffett is an asset. Also, Buffett’s investing partner, Charlie Munger, adds to the strength of Berkshire Hathaway’s management team. Charlie is known for his sage wisdom and has helped to shape the company’s investment strategy for years.
The Stock to Buy For Long term Success
Berkshire Hathaway stock is an excellent investment for those looking for long-term stability and the opportunity to benefit from a diversified portfolio. The company has a strong management team, wide moats among its portfolio companies, and exposure to numerous industries, making it one of the most reliable investments.
Additionally, it pays out special cash dividends every few years, providing investors an extra incentive to invest. However, a primary reason Berkshire Hathaway remains one of the top stocks to invest in is its leadership team: Warren Buffett and Charlie Munger. Their combined insight, knowledge, and expertise make them invaluable in guiding the company to success.
Last but not least, an analysis of Berkshire cash flows discounted to present day reveals upside potential to $619,000 per share for Class A shares, suggesting as much as 36% upside from current levels at the time of research.