Berkshire Hathaway
For that reason, investors may look at the ageing -- though still tack-sharp -- Buffett and assume that the fact that he's now 81 years old is a serious threat to the business. To be sure, the exit of Buffett, for any reason, isn't something to be celebrated. However, Berkshire Hathaway is a huge, sprawling empire that is well positioned to continue thriving in the post-Buffett era.
Don't believe me? Here are three key reasons why Berkshire is a stock worth owning -- with or without Mr. Buffett.
1. I got your diversification right here.
What exactly is Berkshire Hathaway? If you go back far enough in its history, it was a textiles business that got obliterated when it became really, really hard to compete profitably as a U.S.-based textile manufacturer. Fast-forward to today, and Berkshire is a big umbrella under which many great companies live.
Berkshire is probably best known for its insurance operations. Not only does it own GEICO -- the auto-insurance giant -- but it also offers business-focused and more esoteric flavors of insurance through Berkshire Hathaway Group and General Re.
But insurance is far from Berkshire's only business. It also has a major stake in the U.S. railroad industry after its purchase of BNSF Railway. It has a regulated-power footprint as well through MidAmerican Energy. And it has a further list of manufacturers and consumer-related businesses too long to list here in full, but the list includes: RC Willey, NetJets, Iscar Metalworking, Fruit of the Loom, Business Wire, Helzberg Diamonds, and Justin Brands.
And let's not forget that with Berkshire there's also the company's multibillion-dollar stock portfolio that includes huge positions in Coca-Cola
2. Your rock in a hard place.
According to debt-rating agency Standard & Poor's, Berkshire Hathaway is an AA+ company. That rating puts the company on par with the U.S. itself and among the very top of all companies in terms of expected credit risk.
Not that you have to ask S&P to get a good idea of just how stable Berkshire is. The company's balance sheet currently sports more than $180 billion in shareholders' equity against just $61 billion in debt. The company has more than $40 billion in cash and equivalents and an investment portfolio that totaled $135 billion as of June 30. And Berkshire's EBITDA-to-interest ratio -- a key measure of its ability to handle its debt obligations -- is around 12. That measure isn't particularly worrisome until it's around two.
It's a crazy world we live in. Europe is melting down, software glitches are beheading market-making knights, and cynics are trying to bury buy-and-hold investing.
Looking for a port in this crazy storm? Berkshire is it.
3. In a word: valuation.
Now I could weave a truly fantastic story about Berkshire -- its businesses, its management, its investing portfolio -- but if the stock's price was outlandishly high, buying now would only lead to disappointment. But that's not the case.
In fact, it's almost unheard of to be able to get Berkshire stock at the valuation level that it's currently trading at. The chart below shows the stock's price-to-book-value ratio, which is one of the best ways to value an insurance or financial holding company. As you can easily see, rare is the day that Buffett's company sells this cheaply.
BRK-A Price / Book Value data by YCharts.
Not that this has escaped Buffett's notice. Do you think it's any coincidence that in the fall of last year he made the historic announcement that Berkshire had its finger on the share-buyback trigger? Sure, share buybacks may often be a recipe for disaster, but when we're talking about Warren Buffett, it's anything but.
Buy it like Buffett
My take? Berkshire is a buy. That's why I own the stock in my personal portfolio and have rated it an outperformer in my Motley Fool CAPS portfolio.
But I understand; that's just not enough for some investors. They'd rather buy it like Buffett than simply buy Buffett. So if you'd rather try to walk in Buffett's footsteps and buy what he buys, then you'll definitely want to check out The Motley Fool's special report "The Only Big Bank Built to Last." The report digs into the big bank that tops Buffett's list of favorite banks. You can get a free copy of that report by clicking here.
