By Andrew Bary
Berkshire Hathaway stock has been on the upswing over the past month and one reason could be that the company's book value should show a nice increase in the June quarter.
Another factor for the strength could be a rotation into more defensive stocks from the Magnificent Seven and many momentum stocks.
Berkshire is the ultimate defensive play given its diverse earnings stream of more than $40 billion annually and a fortress balance sheet with nearly $400 billion in cash and equivalents.
Berkshire's Class A shares are up almost 8% in the past month to $758,400, including a 1% gain Thursday. The class B stock also has gained almost 8% in the past month to $505.59 and has risen 1.1% Thursday.
Both classes of Berkshire stock are now up less than 1% so far this year, leaving them about 10 percentage points behind the S&P 500.
Barron's estimates that Berkshire's shareholder equity, or book value, gained about 3% in the June quarter relative to the March period, to around $522,000 per Class A share.
That would leave the stock now trading at about 1.45 times book value — in line with the average of recent years but below a peak of about 1.8 times in May 2025 when the stock peaked with the A shares trading over $800,000. The stock hit its high just before the 2025 annual meeting, when Warren Buffett surprised shareholders by saying he would step down as CEO at year-end 2025. He remains as chairman.
The stock's underperformance relative to the index is nearly 40 percentage points since the 2025 annual meeting. This could reflect a disappearance of any "Buffett premium," the high valuation a year ago, and a wait-and-see approach regarding Greg Abel, Buffett's successor as CEO.
The expected growth in Berkshire's book value in the second quarter reflects the company's operating earnings in the period and growth in the value of the company's equity portfolio of more than $300 billion. Apple, Berkshire's largest holding at around $65 billion, rose 14% in the quarter, and other top five investments Coca-Cola, American Express and Bank of America also were higher.
One of the key figures in the second-quarter earnings report expected around Aug. 1 will be the company's stock buyback activity in the period. Berkshire's repurchases of just $235 million of stock in the first quarter disappointed some Berkshire holders given that the company announced the restart of the program in early March after nearly two years of being out of the market.
Berkshire didn't need to publicly reveal the buyback restart and CEO Greg Abel highlighted the action in a CNBC interview the same day. That raised hopes among Berkshire investors that the company would become more aggressive with buybacks with the A stock trading in the low $700,000 area. But it turned out the company bought stock on just one day in early March and then stopped for the rest of the quarter and into the middle of April.
Berkshire bought back over $25 billion of stock in 2021 and probably is capable of repurchasing about $50 billion annually, or about 5% of its market value of over $1 trillion.
Write to Andrew Bary at andrew.bary@barrons.com
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