It is not very often that Wall Street analysts are ambivalent, let alone bearish, toward the house that Warren Buffett built, Berkshire Hathaway (BRK.A 0.46%) (BRK.B 0.38%).
Over the past 60 years, with Buffett at the helm, Berkshire Hathaway has been one of the most reliable, best-performing stocks you can buy. In that time, the stock has beaten the S&P 500 (^GSPC 1.52%) in just about every time period you can imagine -- including five years, 10 years, 20 years, 30 years ... even 40 years.
And over the past 20 years, there were only three years when Berkshire Hathaway stock had a negative calendar-year return -- 2015, 2011, and 2008.
Image source: Getty Images.
But if you look at the stock's analyst ratings right now, their views are mixed on Berkshire Hathaway. Among the analysts covering it, 57% rate it a hold, 29% a buy, and 14% a sell. The median price target for the B shares is $481 per share, which is basically where it's at now -- suggesting a flat return over the next 12 months.
In many respects, it's pretty surprising, but then again, the company is in the midst of a major transition, as Buffett retired in January and Greg Abel became the new CEO. Here's why this matters to investors.
Berkshire Hathaway in transition
Berkshire Hathaway stock is down about 4% year to date and is coming off a year when it returned 10% and trailed the S&P 500's performance.
NYSE: BRK.B
Key Data Points
There are a few reasons for the recent downturn, starting with the transition from Buffett to Abel. Quite simply, the Buffett premium that investors baked into their expectations, based on his track record, is probably not there for most investors with Abel at the helm, at least not yet.
I think this is a bit overblown -- in fact, I'm looking forward to some significant changes in a portfolio that has been extremely conservative in recent years.
Buffett had been selling off shares and hoarding cash, perhaps anticipating a massive downturn. But that left a record $382 billion sitting on the sidelines. That dwarfs the size of the $267 billion Berkshire portfolio.
A lot of that was moved into Treasury bills, and with interest rates likely to continue falling, that could create headwinds in the form of lower returns.
Berkshire Hathaway is now in Abel hands
I suspect that Buffett was likely stockpiling cash to let Abel and his team deploy it, knowing that he was leaving at the end of the year.
We've already had some indication that Abel may be making a major move by dumping Kraft Heinz (KHC 3.50%) stock, per an SEC filing by Kraft Heinz. Kraft Heinz is the ninth-largest position in the Berkshire portfolio and has long underperformed.
The mixed feelings on Berkshire Hathaway may, in fact, present a good opportunity for investors to buy the stock on the cheap, as it is trading at just 15 times earnings.
Abel and company have a lot of dry powder that they have probably been itching to deploy, and with more than 20 years at the right hand of the Oracle of Omaha, my guess is he'll know how to use it.
