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Is This Warren Buffett's Favorite Stock Right Now?

By Daniel Sparks – May 13, 2020 at 10:00PM

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The famed investor's Berkshire Hathaway has spent billions buying this stock over the last two quarters -- more than it has spent buying shares of any other company.

Warren Buffett, CEO and chairman of Berkshire Hathaway (BRK.B -0.21%) (BRK.A -0.39%), is one the greatest investors of all time. His ability to pick stocks and identify undervalued subsidiaries for Berkshire to acquire has helped the company's stock price grow at an average rate of about a 20% annualized since 1965 -- approximately doubling the S&P 500's annualized return over the same timeframe. No wonder investors watch closely when the famed investor makes a move.

While we won't have the full details on Buffett's recent purchases until the company releases its 13-F filing this week, one thing is clear: Berkshire Hathaway itself is among Buffett's favorite stocks to buy lately -- and it may even be his top pick.

Warren Buffett at a Berkshire annual shareholder meeting

Warren Buffett. Image source: The Motley Fool.

Spending billions on Berkshire stock

While Berkshire hasn't revealed all of its stock purchases in Q1 yet, the company did provide an update on its share repurchases in its recently filed quarterly report.  The conglomerate bought back around $1.58 billion worth of its own stock during the quarter. This is a sizable purchase relative to the company's total purchases during the period. In total, Buffett spent about $4 billion buying stocks in Q1. This means Berkshire represented about 40% of all equities purchases during the period.

Driving home just how much more attractive Berkshire is finding its own stock to buy than other stocks, Berkshire was by far the company's largest stock purchase in Q4 as well. During the period, Berkshire spent $2.2 billion buying back its own stock -- greater than all of its other stock purchases combined during the quarter. Further, this put total repurchases in 2019 at about $5 billion -- up from just over $1 billion in 2018.

To be clear, it's possible that Berkshire spent more than $1.58 billion on a different stock besides Berkshire during Q1. But it's unlikely given that Berkshire only spent $4 billion total buying securities. However, when you consider this purchase with the $2.2 billion Berkshire spent on repurchases in Q1, Berkshire does seem to be Warren Buffett's favorite stock as of late.

Berkshire shares appear to be undervalued

What's notable about Berkshire's share repurchases is that they actually mean something. Unlike many companies that buy back shares no matter where the stock is trading, it's Buffett's policy to only buy back shares when he believes they are meaningfully undervalued. The fact that Berkshire has been a top stock purchase recently speaks volumes about Buffett's view of Berkshire stock.

To this end, the price-to-book value of Berkshire stock is significantly lower than it has been in years. In fact, the last time Berkshire had a price to book value ratio below 1.2 was the beginning of 2013. Today, Berkshire has a price-to-book ratio of about 1.1.

While this ratio offers only one view of Berkshire's stock, the main remains: Buffett clearly sees meaningful value in his own company's stock. In fact, his purchase history over the last two quarters implies it may be the famed investor's favorite stock.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short June 2020 $205 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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Stocks Mentioned

Berkshire Hathaway (A shares) Stock Quote
Berkshire Hathaway (A shares)
BRK.A
$422,545.00 (-0.39%) $-1,635.00
Berkshire Hathaway (B shares) Stock Quote
Berkshire Hathaway (B shares)
BRK.B
$279.90 (-0.21%) $0.59

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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