Berkshire Hathaway (BRK.A 0.14%)(BRK.B 0.24%) is a holding company with a number of wholly owned subsidiaries and a $280 billion portfolio of publicly traded stocks and securities. It's also sitting on a whopping $347 billion in cash that can be deployed into new opportunities.
Berkshire's CEO is none other than investing legend Warren Buffett. Had you invested $1,000 in the company when he took the helm in 1965, it would have been worth an eye-popping $44.7 million at the end of 2024. The same investment in the S&P 500 (^GSPC 0.56%) would have grown to just $342,906 over the same period. Berkshire is beating the S&P yet again this year, with an 11% gain so far compared to a flat performance for the index.
Of all the stocks Buffett has bought on Berkshire's behalf over the last 59 years, one stands out as his clear favorite. That stock is Berkshire Hathaway itself. The conglomerate has spent twice as much money buying back its own shares over the last seven years than it has invested in any other company in its history. Here's why investors might want to add it to their portfolio.
Image source: The Motley Fool.
Buffett is stepping down, but his simple strategy will likely endure
On May 3, Buffett announced he will step down as CEO of Berkshire at the end of 2025. However, he will continue to serve as the company's chairman, which is a role he has held since 1970. As a result, his brand of long-term investing is likely to endure at the conglomerate.
Buffett likes to invest in companies with steady growth, reliable earnings, sound management teams, and shareholder-friendly initiatives like dividend schemes and stock buyback programs. He lets time do the heavy lifting by often holding stocks for decades at a time.
Berkshire's position in Coca-Cola (KO +0.53%) is a prime example of this strategy in action. Buffett acquired 400 million shares in the beverage giant between 1988 and 1994, with a cost basis of $1.3 billion. He still hasn't sold a single share, and that position is now worth a staggering $28.8 billion. Plus, it paid Berkshire $776 million in dividends during 2024 alone, and that payment is likely to grow this year.
Buffett tries to avoid investing in industries outside of his wheelhouse, so you won't find many technology stocks in Berkshire's portfolio. However, he did authorize the purchase of approximately $38 billion worth of Apple (AAPL 1.89%) stock between 2016 and 2023. Speaking about Apple, Buffett once said, "It's probably the best business I know in the world." After all, entire generations of consumers simply can't live without their iPhone.
Heading into 2024, Apple stock had risen so much that Berkshire's stake was worth over $170 billion, representing around half the value of its entire portfolio of publicly traded stocks and securities. Buffett and his team proceeded to sell more than half of the position throughout last year, but it's still Berkshire's largest holding at 21.5% of its portfolio.
NYSE: BRK.A
Key Data Points
Buffett has authorized $77.8 billion worth of stock buybacks since 2018
You might think Apple is Buffett's favorite company considering $38 billion is more than he has ever plowed into any other stock. However, he has also authorized a whopping $77.8 billion worth of share buybacks at Berkshire since 2018.
Buybacks are Buffett's preferred way of returning money to shareholders. When Berkshire acquires its own stock in the open market, it reduces the number of shares in circulation and raises the price per share by a proportionate amount. Companies usually repurchase their stock when it's considered a good value -- in other words, Buffett thought buying Berkshire stock was a better use of capital than buying almost anything else over the last seven years.
Berkshire can repurchase shares at management's discretion as long as the balance of its cash and equivalents is above $30 billion. As I mentioned at the top, the conglomerate is sitting on a whopping $347 billion in dry powder right now, so there is plenty of scope for further buybacks. With that said, Berkshire hasn't repurchased any of its shares for the last three quarters:
BRK.A Stock Buybacks (Quarterly) data by YCharts
There are a few possible reasons for the pause. First, since Buffett is stepping down soon, he might want to leave major decisions like stock buybacks to his successor, Greg Abel. Second, Berkshire stock is trading at a price-to-sales (P/S) ratio of 2.6 as of this writing, which is a 30% premium to its 10-year average of 2. In other words, maybe Berkshire is more expensive right now than Buffett would like:
BRK.A PS Ratio data by YCharts
Why Berkshire stock is still a buy
Berkshire might be one of the best stocks a long-term investor can buy. Whether incoming CEO Abel uses the conglomerate's $347 billion cash pile to repurchase more stock, or to acquire stakes in other companies in accordance with Buffett's long-standing principles, it's likely to drive further upside for shareholders.
Plus, the bulk of Berkshire's operating revenue comes from a portfolio of privately held insurance businesses, logistics companies, and utilities providers, so Buffett has built the conglomerate on a foundation of cash-generating machines, which increases the odds it continues to thrive long after he's gone.
Berkshire's market capitalization is now over $1 trillion, so its stock might struggle to maintain a compound annual return of 19.9% like it has over the last 59 years due to the company's sheer size. But thanks to the quality of its assets, I think it still has a great chance to continue beating the S&P 500.
