Don't fret about Warren Buffett. Berkshire stock is still a buy.

Mint

2 days ago

At a time in the stock market when it is hard to buy a great company at a good price, Berkshire Hathaway merits consideration.
Berkshire is trading at about 11 times earnings, even as many other admired companies are trading at higher multiples.
The valuation disconnect indicates that Berkshire is getting little credit for significant stakes in some of the world's most respected, profitable companies, including Apple, American Express, Coca-Cola, Occidental Petroleum, Moody's, and Chubb. Berkshire also has substantial operations in insurance and reinsurance, utilities and energy, freight rail transportation, and retailing.
Berkshire's stock price doesn't fully reflect the company's strength because investors are overweighting a simple fact: that Berkshire's legendary CEO, Warren Buffett, is mortal like all of us.
Buffett is 94, and the impact his age is exerting on Berkshire's stock price is irrational. Investors are concerned over his announcement earlier this year that he will be stepping back from the company he has controlled since 1965. Greg Abel, vice chairman of Berkshire's noninsurance operations, is expected to succeed Buffett as CEO at the end of 2025, though Buffett will remain chairman.
Berkshire's Class B shares are up 3.8% this year, compared with 9.6% for the S&P 500. Over the past 12 months, Berkshire is up 9.3%, compared with 21% for the index.
Buffett is one of America's greatest investors and entrepreneurs. He is admired on Wall Street and on Main Street, which is no small accomplishment. Few financiers have ever captured the public's admiration and affection like he has.
Moreover, Buffett has always been a calming market presence. He has repeatedly stepped in when others were afraid to buy distressed companies. His actions have often marked the beginning of the end of crises.
It is understandable that many investors are struggling to imagine the financial world without Buffett. But it is silly to think he has failed to prepare his company for what comes next.
If you agree that Berkshire's culture—and the quality of its operations—will thrive without Buffett's day-to-day oversight, the weak stock price creates a buying opportunity.
The simplest move is to buy Berkshire B shares at their current price of $470.39. During the past 52 weeks, they have ranged from $425.90 to $542.07.
Options-centric investors can sell puts to buy the stock at potentially lower prices.
The October $460 put, for instance, could be sold for $6.50, and the October $455 puts for $5.20. The put sales obligate sellers to buy shares at effective prices of $453.50 and $449.80, respectively. If the stock is above the put strikes at expiration, investors can keep the put premium and reset the strategy.
The October expiration anticipates investors may slowly come to their senses as the stock market nears a seasonally volatile period. October marks the stock market's historical declines, and investors tend to become interested in quality investments around that time.
There is no major sense of doom percolating in the markets at the moment, but a little uncertainty—sparked by weak or strong economic data that affects hopes for interest rate cuts—could be a bearish spark.
In a volatile market, investors will remember that Berkshire is a stable, well-run business. The company also has some $350 billion in Treasuries that Buffett presumably could use to make another one of his famous distressed purchases at a time when others are panicking.
Our Berkshire stock recommendation is a vote of confidence in Charles de Gaulle's observation that the cemeteries of the world are filled with indispensable men.
Email: [e-mail]