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Warren Buffett's Berkshire Is Still Loading Up on This Stock

By Daniel Sparks – Nov 9, 2021 at 8:05AM

Key Points

  • Berkshire is on pace to buy back more of its stock this year than it did last year -- and last year was a record for the company.
  • The company spent nearly $8 billion on repurchases during Q3.
  • It's Berkshire's policy to only buy back its stock if it believes shares are meaningfully undervalued.

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The Oracle of Omaha spent billions buying this stock in Q3.

Berkshire Hathaway (BRK.B -0.59%) (BRK.A -1.05%) shares were little moved on Monday, despite the Warren Buffett-led conglomerate reporting results over the weekend. The company's 10-Q for the period revealed that Berkshire has been slow to deploy its growing pile of cash, perhaps contributing to the market's muted response. Its war chest of cash swelled to $149 billion.

But there is one stock that Berkshire Hathaway continued buying aggressively during the quarter: its own. Buffett's Berkshire is on pace to buy back more shares this year than ever before.

Warren Buffett at one of Berkshire's annual meetings.

Warren Buffett. Image source: The Motley Fool.

Is this Buffett's favorite stock?

Berkshire Hathaway bought $7.6 billion worth of its own stock during Q3, according to the company's third-quarter report. This is about $1.6 billion more than Berkshire repurchased in Q1 and approximately $1.0 billion more than it repurchased Q2.

Capturing the bullish signal of these quarterly repurchases, they put the company on pace to buy back more shares in 2021 than Berkshire did in 2020. And the $24.7 billion Berkshire spent repurchasing shares last year was a record for the company. 

Importantly, Buffett has repeatedly told shareholders that Berkshire only repurchases shares if it believes they are undervalued. "Calculations of intrinsic value are far from precise," the CEO explained in the company's 2019 shareholder letter.  "Consequently, neither [Charlie or myself feel] any urgency to buy an estimated $1 of value for a very real 95 cents."

In short, when combining the sheer volume of Berkshire's recent repurchases with the company's strict policy to only buy back shares when Buffett and Charlie believe they are trading at a discount to their intrinsic value, it's safe to say that Buffett likes Berkshire stock. Indeed, it may be his favorite stock to buy right now because the company has been a net seller of stocks throughout 2021.

Should investors follow Buffett's lead?

It's safe to say that Buffett knows what he's doing with his Berkshire repurchases. After all, the Oracle of Omaha's investment prowess in stocks and outright purchases of subsidiaries has helped Berkshire stock compound at an average rate of 20% annually between 1965 and 2020, nearly doubling the S&P 500's annualized return of 10.2% over this same time frame.

Of course, no investment is without risk -- even if it's spearheaded by Buffett himself. So investors should still take some time to do their own due diligence to see if the stock's valuation makes sense relative to Berkshire's long-term business potential. But my guess is that if you look over Berkshire's business close enough, you'll conclude that Buffett is onto something.

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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