Warren Buffett’s Berkshire Hathaway reached a market capitalization of $1 trillion on Wednesday, becoming the first non-technology company in the U.S. to reach that coveted milestone.
Shares of the Omaha, Nebraska-based conglomerate are up more than 28% in 2024, far more than the S&P 500, which is up 18%. The $1 trillion mark was crossed just two days before the “Oracle of Omaha” would have turned 94.
Shares rose 0.8% to $696,502.02 on Wednesday, according to FactSet, surpassing the $1 trillion mark.
The milestone is “a testament to the company’s financial strength and value,” said Cathy Seifert, Berkshire analyst at CFRA Research. “This is significant at a time when Berkshire is one of the few conglomerates still in existence.”
Unlike the six other companies in the trillion-dollar club (Apple, Nvidia, Microsoft, Alphabet, Amazon and Meta), Berkshire is known for its focus on the traditional economy as the owner of BNSF Railway, Geico Insurance and Dairy Queen. (Although its sizable Apple position has contributed to recent gains.)
BuffetChairman and CEO, took control of Berkshire, a struggling textile company, in the 1960s and transformed the company into a sprawling empire spanning insurance, railroads, retail, manufacturing and energy, with an unmatched balance sheet and cash reserves.
“It’s a credit to Mr. Buffet and his management team because ‘old economy’ companies built Berkshire. Yet these companies trade at relatively much lower valuations than technology companies, which are not a large part of Berkshire’s business mix,” said Andrew Kligerman, Berkshire analyst at TD Cowen. “Moreover, Berkshire has achieved this through a conglomerate structure, a model many consider ‘archaic’ as companies have increasingly focused on specialization over the decades.”
Greg Abel, vice chairman of Berkshire’s non-insurance business, was named Buffett’s successor. At this year’s annual meeting, Buffett told shareholders that Abel, 62, would have the final say on Berkshire’s investment decisions when he was no longer at the helm.
Sales frenzy
Buffett has been on the defensive lately, selling a large amount of stocks, including half of his Apple stake, while allowing Berkshire’s cash holdings to rise to a record $277 billion at the end of June.
Buffett is known for never timing the market and advises others not to try either. But for some of his followers on Wall Street, these recent moves were a wake-up call. They believe he had noticed things about the economy and market valuation that he didn’t like.
Berkshire invests most of its cash in short-term Treasury securities, and its holdings of such securities – worth $234.6 billion at the end of the second quarter – exceed the amount held by the Federal Reserve.
So it’s hard to know why investors are rewarding Berkshire with the trillion-dollar crown today – whether it’s a bet on the American economy and Buffett’s sprawling group of companies, which stands to benefit from such a successful performance, or whether they see Berkshire as a cash fortress that will provide them with stable returns even in the face of an uncertain macro environment.
The conglomerate also began a selling spree in Bank of America shares in mid-July, getting rid of bank securities worth more than $5 billion. Buffett bought the bank’s preferred shares and warrants in 2011 after the financial crisis, thereby strengthening confidence in the bank, which is struggling with losses related to subprime mortgages.
Strong result
Following Berkshire’s recent strong second-quarter earnings, UBS analyst Brian Meredith raised his earnings forecasts for 2024 and 2025 for two reasons: higher investment income and higher underwriting results at the insurance group, which includes Geico. Insurance stocks have risen sharply this year as the group continues to raise prices in the wake of the pandemic.
Meredith expects Berkshire’s market value to rise to well over $1 trillion and raised his price target for Class A shares for the next 12 months to $759,000, up nearly 9 percent from Wednesday.
“We continue to believe that BRK shares represent an attractive investment in an uncertain macro environment,” he wrote in the note earlier this month.
High price
Berkshire’s original Class A shares command some of the highest prices on Wall Street. Today, each share sells for 68% more than the average price of a home in the United States.
That’s because Buffett has never split the stock, as he claims the high share price attracts and retains more long-term, quality-oriented investors. The Benjamin Graham protégé has said that many Berkshire shareholders use their shares as a savings account.
Nevertheless, in 1996, Berkshire issued Class B shares at a price equal to one-thirtieth of a Class A share to accommodate smaller investors who wanted a small piece of Buffett’s performance.
