Market Commentary: 1 Stock to Buy Above All Others

Warren Buffett, the legendary investor and CEO of Berkshire Hathaway, has a track record that speaks for itself. Over the years, his investment decisions have consistently outperformed the broader market by an average factor of 2x annually since he took the helm.

Following its recent earnings report, a standout feature of Berkshire Hathaway now is its substantial cash pile. With a record-breaking $157.2 billion in cash reserves, Buffett and his team have positioned themselves to navigate economic downturns with ease.

This enormous cash cushion is a virtual insurance policy during market corrections, allowing Berkshire to seize opportunities when others can’t. It’s particularly noteworthy that Buffett prefers short-term Treasury bills, which provide flexibility and interest accrual, making them a strategic choice for the conglomerate.

So is Berkshire a buy now?

Key Points

• Berkshire Hathaway currently boasts a record-breaking $157.2 billion in cash reserves, enabling it to jump on deals in times of economic strife.
• Despite its remarkable market outperformance, Berkshire appears undervalued with 33% upside from current levels.
• Berkshire’s wide economic moat, exemplified by its high return on invested capital (ROIC) signifies its long-term competitive advantage and stability as an investment.

Is Berkshire a Buy?

Despite Berkshire Hathaway’s remarkable market outperformance in recent years relative to the market averages, the company’s price-to-earnings (P/E) ratio remains at just under 9x, well below the S&P 500 average.

A DCF valuation analysis confirms that Berkshire is on sale with upside of around 33% from present levels. Combine the valuation argument with Buffett’s affinity for companies with wide economic moats and the future is bright.

Indeed, one key indicator of Berkshire’s own moat is its return on invested capital (ROIC) that sits about 30% higher than the average S&P 500 stock. That is indicative of Berkshire possessing a moat so wide that it may never be crossed by competitors.

When to Buy Berkshire?

This year, Berkshire has been moving generally in line with the major market averages, particularly the S&P 500. The difference in performance this year between the two is a measly 0.2%.

Where Berkshire will shine brightest, though, is not on the way up but on the way down. For example, last year when the market tumbled by around 20%, Berkshire stayed marginally above water, demonstrating massive relative outperformance.

Speculations are rife now that, following a run-up during the holiday period, the market could culminate in a blow-off top in January and may be in for a rough ride in 2024. If that prediction turns out to be true, Berkshire could offer a safe haven for investors during a period of economic tumult.

Final Thoughts

With a significant cash reserve, attractive valuation and wide economic moat exemplified by its ROIC, Berkshire has all the hallmarks of an investment that will stand the test of time.

Interestingly, Buffett has shied away from further Berkshire share repurchases during the most recent quarter and also amassed more sales of equities than purchases, inferring he doesn’t see a whole lot of value in the market at this time.

That should be a signal to investors to start eyeing safer haven stocks to park capital over the next year or so, and Berkshire tops the list.