This has been an exceptionally good year for shares of Berkshire Hathaway (BRK.A 0.33%) (BRK.B 0.29%). Warren Buffett's investment conglomerate is up over 3% with just a couple of weeks to go until 2023, compared to a 16% decline for the S&P 500. This will be the second year in a row Buffett has beaten the market.
Thanks to this performance amid a bear market, investors have been keen on the world's wealthiest professional investor once again. But is now still a good time to buy shares of Berkshire Hathaway?
An easy method for making a timely Berkshire Hathaway purchase
Since the start of the last bull market (early 2009, when the Great Recession was still wreaking havoc on the economy), Berkshire Hathaway stock hasn't exactly been a huge market-beating investment. On the contrary, Buffett and vice-chair Charlie Munger have been content to sit on their portfolio of wholly owned businesses and publicly traded stocks. Big, splashy acquisitions have been few and far between as high-growth technology stocks dominated the 2010s.
But value investing like Buffett and Munger are known for has come back into style this year, and Berkshire's previously out-of-favor businesses (insurance, banks, infrastructure, and energy) have done well in 2022. Thus the stock's outperformance.
But Berkshire shares are notoriously difficult to stick a value on. For one thing, the portfolio of wholly owned businesses is large and extensive (GEICO insurance and the BNSF railroad, for example). Then add to that the four dozen or so stocks Berkshire and subsidiaries hold, which together are worth upward of $350 billion. That makes using traditional metrics to value Berkshire stock almost useless. For example, the stock's current price-to-earnings (P/E) ratio is 55, but earlier in the year, it was less than 10.
Instead, Buffett and Munger tend to use book value (measured as a company's total assets minus liabilities) to determine the value of Berkshire Hathaway. Here at the end of 2022, shares trade toward the higher end of their range over the last decade on a price-to-book-value (P/B) basis.
Granted, as you can see from the chart above, even when trading at 1.5 times P/B, Berkshire stock tended to keep rising. But those returns didn't make it a market-beating investment. Thus, this metric can actually provide a clue as to how good a buy Berkshire Hathaway stock is right now.
Historically, when P/B is near or below 1, Buffett and Munger have deployed lots of cash to repurchase Berkshire shares. This is what occurred in 2020 and 2021. In the 2021 annual update, Buffett and Munger used $51.7 billion to purchase and retire Berkshire stock.
But things have changed a bit in 2022. Share repurchases continue, but at a much slower pace: just $5.25 billion through the first nine months of 2022. The top team at Berkshire has instead shifted its attention to other stocks.
A $66.2 billion spending spree
This year, Berkshire Hathaway began shopping the stock market in earnest again. Early in 2022, it was announced that reinsurance specialist Alleghany was being acquired for $11.6 billion. And Buffett has been busy adding other stocks to the portfolio of non-subsidiaries. In total, Berkshire Hathaway has purchased over $66.2 billion in equity securities (and sold $17.3 billion, for a total net purchase of $48.9 billion).
What has the top team at Berkshire Hathaway been buying instead of its own stock in 2022? More Apple (AAPL 0.45%), which now accounts for some 40% of the Berkshire stock portfolio. Top Apple chip supplier Taiwan Semiconductor Manufacturing (TSM -1.70%) was also a recent addition. Oil stocks have ranked high on the buy list, with Chevron (CVX 0.44%) and Occidental Petroleum (OXY 0.59%) together now accounting for nearly 13% of Buffett's equity holdings. And a number of banking and financial services companies have also factored prominently into the stock purchases this year.
In total, Buffett and company have bought or added to 19 different stocks so far in 2022.
Is Berkshire Hathaway a buy?
Berkshire Hathaway is a wonderful company to own, akin to having an exchange-traded fund on the portfolio of the world's greatest value investor. But is it a best-buy now at the end of 2022? Based on Buffett's own purchase activity, I'd say no. After a brutal year in the stock market, there are deals to be had out there, especially among high-quality tech stocks.
Nevertheless, if you're looking for consistent growth over the long term, there's never anything wrong with buying a few more shares of Berkshire Hathaway.