Given Warren Buffett's outstanding investment track record, many investors carefully watch Berkshire Hathaway's (BRK.B 1.01%) (BRK.A 0.96%) investments. The company's quarterly 13-F filing with the Securities and Exchange Commission (SEC) gives investors insight into what the Berkshire chief and his investment lieutenants are bullish on.
A close look at Berkshire Hathaway's portfolio today shows, first and foremost, that Buffett loves Apple (AAPL -0.91%). A review of the company's recent 13-F filings reveals that the stock is by far Berkshire's largest holding, accounting for about 42% of the conglomerate's equities portfolio. Other interesting bets can be found, too, including recent purchases of Occidental Petroleum, Ally Financial, Markel, and more.
While all of these companies are great investment ideas, it's none of the names in Berkshire's stock portfolio that has me the most excited. Indeed, some investors may be so busy looking for ideas in Berkshire's portfolio that they are overlooking the best Warren Buffett stock of all: Berkshire Hathaway itself.
Now that this high-quality business is down about 24% from an all-time high achieved earlier this year, investors may want to think carefully about buying shares while it's trading lower. The stock has arguably become too cheap to ignore.
Strong subsidiary operating earnings
While Berkshire's reported net income fluctuates significantly from year to year due to the changing value of the company's portfolio of stocks, investors can easily check on Berkshire's diversified set of subsidiaries by looking at reported operating earnings. For the first six months of 2022, the investment giant generated $16.3 billion in operating earnings, up from $13.7 billion in the year-ago period. Using this figure to calculate annualized operating earnings on a run-rate, basis, the company is generating about $32 billion in annual operating earnings. With a $610 billion market capitalization, the stock trades at just 19 times Berkshire's subsidiary group's annualized run-rate operating earnings.
Of course, if you subtract the value of the company's $338 billion equities portfolio from this market cap, you could say that Berkshire's subsidiary group theoretically trades at just 8.5 times operating earnings.
A robust stock portfolio
But investors shouldn't discount the potential of Berkshire's stock portfolio. Given the Oracle of Omaha's history of strong investment performance, and considering that we're in the middle of a bear market, Berkshire's equity holdings are likely collectively undervalued at the moment. I certainly think Berkshire's largest holding, Apple, is undervalued.
Warren Buffett. Image source: The Motley Fool.
A low-risk business
Finally, there's the fact that when investors buy into Berkshire Hathaway they're essentially buying into a curated selection of high-quality American assets -- not just one stock. This means that there's a much lower risk that something can go terribly wrong with the company.
Considering Berkshire's diversified business of quality subsidiaries, its attractive portfolio of equities, and its cheap valuation (1.3 times book value), I think Berkshire Hathaway is the most attractive Warren Buffett stock today. And, apparently, Buffett agrees that the stock is a buy; Berkshire repurchased about $5 billion worth of its stock this year -- and the investor has explicitly stated that he would not buy back shares unless he thinks they are meaningfully undervalued.
