Berkshire-Hathaway: For Every Investor

12/27/2013 7:00 am EST


Ian Wyatt

Publisher & Chief Investment Strategist, Wyatt Investment Research

Some of the best stocks in our portfolio are blue-chip companies with among the most recognizable corporate names in the world, explains Ian Wyatt, in his $100k Portfolio. Here, he looks at the holding company of Warren Buffett.

Berkshire Hathaway (BRK-B) remains attractively valued, with plenty of room to grow. Since legendary investor Warren Buffett took control of the former textile company in 1965, Berkshire Hathaway has grown its book value by an average of nearly 20% a year.

That's more than double the 9.4% annualized return of the S&P 500 (SPX) during that time. In a nutshell, Buffett and his business partner Charlie Munger have the best long-term investment track record in the world.

Berkshire Hathaway's outstanding track record is the reason I added the stock to the $100k Portfolio back in March 2011. Since then, it's up 36%. That performance is likely to continue in the years ahead, even after Buffett is no longer running the company.

Berkshire Hathaway is sitting on a mountain of cash. In the last year, the company generated cash flow of $13.8 billion. The balance sheet is cash rich too. Berkshire already has $42 billion in cash and $29 billion in short-term bonds. With a stockpile of nearly $75 billion, Berkshire is highly liquid and prepared to make big acquisitions.

The company doesn't issue a dividend; Berkshire does, however, issue occasional stock buybacks—a practice that reduces the share count and increases profits per share.

Meanwhile, Berkshire Hathaway is undervalued. Berkshire's intrinsic value per share is trading at just ten times pre-tax earnings. Thus, shares are trading at a 21% discount to their implied value.

Buffett has built Berkshire into something quite unique. It's a lean, agile company that owns, outright, hundreds of the best businesses, big and small. Plus, it has a diverse investment portfolio of some of the best individual stocks and bonds money can buy.

But you don't have to buy them yourself. By simply buying shares of Berkshire Hathaway, you gain access to that diversity—a portfolio of stocks as varied as American Express (AXP), Coca-Cola (NY: KO), DirecTV (DTV), and Wells Fargo (WFC).

Berkshire Hathaway is more than just a holding company, however. It's a combination of publicly traded investments Buffett has made over the years, including privately held companies such as Fruit of the Loom and See's Candies, and insurance companies such as Geico and Gen Re.

The stock has been a big winner for us already, and I expect that performance to continue in the years ahead. We consider it a blue-chip stock that every investor should have in their portfolio.

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