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Where Could Berkshire Hathaway Be in 10 Years?

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Warren Buffett's Berkshire Hathaway averaged annual gains of nearly 15% over the past 25 years. Can it match this over the next decade?

The company may not be a household name, but tens of thousands attend its annual meeting in Omaha each year, to listen to Warren Buffett and his partner Charlie Munger. Image source: Stefan Krasowski, Flickr.

Many people have never heard of Berkshire Hathaway (BRK.A 0.32%) (BRK.B 0.41%), but they should. It's not only ranked fourth on the Fortune 500 list, but it's also helmed by super-investor Warren Buffett -- someone many have heard of. Better still, it has averaged annual gains of nearly 15% over the past 25 years and has handily topped the S&P 500's performance over the past 25, 15, and 10 years.

If you think you might be interested in buying some shares, read on for some perspectives on where the company may be a decade from now.

Dan Caplinger: One trend Berkshire is likely to see continue is its tendency to emphasize buying entire businesses and running them as fully owned operating companies rather than just buying shares and allowing them to continue existing as independent publicly traded stocks.

The purchase of railroad giant Burlington Northern Santa Fe was a huge step in that direction, but since then, Buffett has added to his elephant-trophy list several times. Most recently, the $32 billion purchase of Precision Castparts will give Berkshire exposure to the fast-growing aerospace industry, as the maker of fasteners and other components for aircraft has seen its business skyrocket along with demand for new airplane models.

Image source: Kurt Haubrich, Flickr.

As with Burlington Northern, Berkshire's investment in Precision Castparts started as a small stake in its shares, so investors can look to current holdings for guidance on what might be Berkshire's next big target. Regardless of what companies Berkshire ends up buying, the advantage of a complete takeover is that Buffett gets to free each of Berkshire's divisions from the full scrutiny of the public eye. That gives them the time they need to pursue longer-term strategies, and that, in turn, is what will likely carry Berkshire's strong performance record further into the future.

Adam Galas: I think there's a good chance the Berkshire Hathaway of 2025 will have a much larger presence in energy. In fact, the company's energy arm, Berkshire Hathaway Energy, already represents a substantial portion of the company's business, equal to about 9% of year-to-date sales and 15% of its assets. Berkshire Hathaway Energy focuses on the kinds of fixed-fee, long-term contracted revenue that results in the predictable cash flow that is the hallmark of the kind of business model Buffett likes. 

For example, its subsidiaries Northern Natural Gas and Kern River Transmission Co. own 16,400 miles of natural gas pipelines. Berkshire also owns four utilities with 8.44 million customers in 11 states and the U.K., as well as two electrical transmission companies that operate almost 8,800 miles of power transmission lines.

Finally, Berkshire has invested heavily in renewable energy, with almost 3.4 GW of solar, wind, geothermal, and hydro power generating capacity in six states. Why do I think this part of Berkshire's business will grow so much over the next 10 years? Two simple reasons.

Image source: Theodore Scott, Flickr

First, the worst oil crash in decades means excellent pipeline opportunities are now trading for far lower prices compared to 18 months ago, which appeals to the value-focused Berkshire. Second, renewable energy is one of Buffet's favorite industries. For example, he's already invested more than $6 billion in three enormous solar projects built by First Solar and SunPower.

As the world's concerns over climate change rise, numerous nations are planning to greatly expand the percentage of power they get from carbon-free sources. In fact, between 2016 and 2030, Bloomberg estimates that 402 GW of new solar capacity will be brought online worldwide.

This represents one of the largest and longest-term growth runways of any energy source of the next few decades. What's more, such projects are often supported by 20- and 25-year contracts that would provide inflation-protected, recurring cash flow to further invest into expanding Berkshire Energy's growing empire of valuable, cash-flow-rich assets.

Selena Maranjian: One possibility for Berkshire Hathaway 10 years from now is that it might be helmed by someone other than the guy who has held the reins for the last 50 years. In other words, CEO Warren Buffett may have passed the reins on to someone else by then.

The very thought of that has many investors and would-be investors worried, and it's an issue that comes up at just about every Berkshire annual meeting. Buffett's answer remains the same, though -- that the board of directors knows who should step in as soon as Buffett is no longer able to lead. Two likely leading contenders are Ajit Jain, who built and heads up Berkshire's reinsurance unit, and Greg Abel, who heads its growing energy division.

It's unlikely any one person can do all that Buffett can do, so shareholders can also rest assured that he has two investing lieutenants in place, each overseeing more than $7 billion each: Ted Weschler and Todd Combs have been posting strong results in recent years.

Fortune magazine estimated that both men failed to beat the market in 2014, but noted, "Combs' portfolio was up by an astounding 51% in 2013. Through the second quarter of last year, his portfolio was up 116% since joining Berkshire. Weschler, who joined Berkshire a year later, was up 81% through the middle of last year." Buffett has said that being a businessman has helped him be a better investor, so he has also placed each of them operationally at the helm of a Berkshire subsidiary.

It appears the company will be well cared for -- by a hand-picked CEO and top-notch allocators of capital. But what about the heart and soul -- the culture -- of the company? Well, Buffett has addressed that, too, saying that his son Howard will be charged with maintaining the company's culture.

Selena Maranjian owns shares of Berkshire Hathaway and SunPower. The Motley Fool owns shares of and recommends Berkshire Hathaway. The Motley Fool recommends Precision Castparts. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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