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1 Top Stock Warren Buffett Is Spending Billions On

By Daniel Sparks - Jun 24, 2021 at 8:15AM

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It seems to be the Oracle of Omaha's favorite stock to buy lately. Should you buy it, too?

Famed investor Warren Buffett is investing Berkshire Hathaway's (BRK.A 0.55%) (BRK.B 0.42%) capital in one stock more than any other: Berkshire Hathaway. Yes, you heard that right. The investment conglomerate spent nearly $25 billion repurchasing its own shares last year -- and the aggressive buying seems to be continuing into Q2.

This is a telling sign of how valuable Buffett thinks Berkshire's own shares are, as he has said numerous times that the company only buys back its stock when he believes it's undervalued.

Warren Buffett smiling at an annual shareholder meeting.

Warren Buffet. Image source: The Motley Fool.

Berkshire's $13 billion investment

After repurchasing $24.7 billion of Berkshire stock last year -- more than ever before -- the company appears to be buying back stock at a similar pace in 2021.

A new Securities and Exchange Commission (SEC) filing from Warren Buffett that shows details on Berkshire's share count suggests that the company has bought back about $6.4 billion worth of stock in Q2, according to estimates by Barron's. This adds to the $6.6 billion the company repurchased in the first quarter of the year. 

Of course, there's still time left in Q2 for even more repurchases.

Notably, if Berkshire repurchases just as many shares in the second half of 2021 as it did during the first half of the year, this would amount to $26 billion -- more than the company's record buyback last year.

What investors should know

To put the significance of this buyback into context, the $24.7 billion Berkshire repurchased last year was enough for the company to reduce its share count by about 5%. Further, the fact that Berkshire continues to buy back its own shares in droves is particularly telling in light of the company's capital-allocation strategy regarding repurchases. "In no way do we think that Berkshire shares should be repurchased at simply any price," Buffett explained in the company's 2020 annual shareholder letter.

Buffett continued:

I emphasize that point because American CEOs have an embarrassing record of devoting more company funds to repurchases when prices have risen than when they have tanked. Our approach is exactly the reverse.

In other words, Berkshire aims to buy back its own shares only when Buffett believes they're trading at a meaningful discount to their intrinsic value. Suffice it to say, if Buffett is buying back shares of Berkshire today, he believes they're a good long-term investment.

Given the fact that Buffett has compounded the per-share market value at an average rate of 20% annually since 1965, beating the market's average annual return of about 10%, Berkshire's sizable repurchases should be enough to get investors to take a second look at the stock.

Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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Stocks Mentioned

Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.A
$455,170.00 (0.55%) $2,472.75
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.B
$302.82 (0.42%) $1.27

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