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Is Berkshire Hathaway a Good Stock for Rising Interest Rates?

By Taylor Carmichael and Jason Hall – Oct 29, 2021 at 3:00PM

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With inflation taking off, a lot of investors think interest rates are going up. How does Berkshire do in such an environment?

On Motley Fool Live's "The 5," Fool.com contributors take questions from the audience. One viewer asked a question about Berkshire Hathaway (BRK.B -0.30%). How does this stock perform in a rising-interest rates environment? Motley Fool contributor Jason Hall gives his answer.

This segment was recorded on Oct 11.

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Jason Hall: ProShopGuy says, "If inflation continues and if interest rates move higher, banks appear to be positioned to benefit from rate increases. What is your opinion of Berkshire Hathaway with their group of financial services companies?"

The interesting thing is that Berkshire Hathaway's exposure to banks has actually fallen over the past couple of years, largely because Apple (AAPL 1.48%) has become such a dominant part of its portfolio, but also it's sold its position in Wells (WFC 1.04%). Hasn't really increased its position anywhere else. Bank of America (BAC 1.35%) is its second-largest holding -- worth about $40 billion. It's a pretty significant increase. I think there's an upside there, I do think that there's upside there because what should happen is the book value or price-to-earnings multiples on its bank stock holdings should make them more valuable. That should increase Berkshire Hathaway's value. But the bottom line is that if you look over the past 10 years, really the past five years, big banks have not been great investments, they've certainly been market under-performing investments and that's weighed on Berkshire's portfolio. But thinking more broadly about Berkshire than just its financial services holdings. Thinking about its utility business, thinking about the investments that they're making in the energy transmission as more renewables are deployed and it's able to get cash flows from getting that electricity from the middle of the country to the population centers. You think about its infrastructure, businesses that are exposed to, and picks-and-shovels for infrastructure. There is a tremendous -- a lot to like about Berkshire right now. I'm more compelled by Berkshire now than I have been in the past five years.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Taylor Carmichael owns shares of Apple. The Motley Fool owns shares of and recommends Apple and Berkshire Hathaway (B shares). The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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