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Berkshire Hathaway stock price in 5 years: Can Dairy Queen owner BRK resume, maintain otherworldly growth?

By Alejandro Arrieche

Edited by Georgy Istigechev

12:25, 28 October 2022

Woman shows a card with photos of Warren Buffett (L) and Charlie Munger (R)
Berkshire Hathaway’s stock price has lost a mere 3% of its value year-to-date – Photo: Chandan Khanna / AFP via Getty Images

More than a week ago, Berkshire Hathaway (BRK.A, BRK.B) completed the acquisition of Alleghany Corporation – another insurance company that comes to join the big family of subsidiaries that make up the conglomerate run by Warren Buffett.

Berkshire paid $11.6bn for Alleghany’s equity. This represents a small withdrawal from the company’s sizable war chest, as Berkshire still holds over $100bn in cash, equivalents, and short-term investments that have not yet been allocated.

BRKb, Berkshire’s class B shares, have recently rebounded, rising over 10% from a low of $264 on 12 October to the current (as of 27 October) market price of around $290, according to data from Investing.com.

Berkshire Hathaway Class B (BRKb) Share Price Chart

The recent changes in the macroeconomic backdrop have made equity valuations more appealing to investors.

Could the so-called Oracle of Omaha be planning to deploy some of those resources into new acquisitions?

How would that impact the Berkshire Hathaway stock price in 5 years? In this article, we analyse Berkshire Hathaway’s performance and prospects to provide possible answers to that question.

What is Berkshire Hathaway?

Back in 1965, Berkshire Hathaway was a textile company on the verge of running out of business. Warren Buffett saw in the company an opportunity to buy its distressed assets for a fraction of their market value. From the ashes of that business, he built what is considered one of the world’s largest conglomerates.

Berkshire Hathaway is the holding company of more than 60 large corporations, including some of America’s most beloved brands like Dairy Queen and Fruit of the Loom. These businesses generate revenue for Berkshire. The company divides its operations into two segments: Insurance & Other and Railroad, Utilities and Energy.

The conglomerate also generates money from its stock investments. This portfolio is made up of Buffett’s hand-picked equity instruments listed in public exchanges.

As of 27 October 2022, the BRK.B stock price has grown by close to 55% over the past five years, and currently (28 October) trades around the $290 mark.

Berkshire hathaway (brk.b) 5y stock price chart

Warren Buffett is the company’s CEO. Through its many subsidiaries, Berkshire provides employment to more than 360,000 people. The firm is headquartered in Omaha, Nebraska.

Berkshire Hathaway’s stock is listed on the New York Stock Exchange (NYSE) under two ticker symbols: BRK.A and BRK.B. Class B shares represent 1/1500 of a Class A share, hence their lower price. 

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Berkshire Hathaway: Historical stock price

This year’s Berkshire Hathaway stock history shows that the valuation of the company owned by Warren Buffett has been declining sharply since March as macroeconomic conditions across the world have deteriorated.

BRK.B 10Y STOCK PERFORMANCE VS. US BENCHMARK STOCK INDICES

So far in 2022, the stock has shed a mere 3% of its value, compared to losses of 30.4% and 19.6% produced by the US Tech 100 Index (US100) and S&P 500 Index (US500), respectively, during that same period.

A decline in equity valuations may be partially responsible for this drop as Buffett’s investments in the stock market have suffered a big setback.

Data from Berkshire’s latest quarterly earnings report show that the value of the company’s investments in equity securities dropped from $350.72bn back in December 2021 to $327.66bn by the end of June this year. 

A closer look at the performance of Berkshire’s portfolio shows that net unrealised gains declined significantly from $246.11bn by the end of 2021 to $177.94bn by the end of the first six months of this year as higher interest rates and geopolitical tensions have depressed stock values.

Moreover, during the first six months of the year, Berkshire reported net losses of $38.29bn compared to earnings of $39.80bn the firm produced during the same period a year ago. Those losses were primarily caused by the $68.89bn loss that the company took on its investment portfolio during the period.

Key drivers for Berkshire Hathaway stock value

Let’s take a look at some of the main factors influencing the BRK stock value as of October 2022.

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Further interest rate hikes

The close relationship between the performance of Berkshire Hathaway’s stock portfolio and its valuation makes the overall state of the stock market an important driver to consider when drafting predictions for the BRK stock price.

The actions taken by central banks – primarily the US Federal Reserve (Fed) and the European Central Bank (ECB) – to curb inflation in their respective economies, which include raising interest rates and possibly unwinding their portfolio of fixed-income securities, are the most important variable weighing on equity valuations.

If inflation does not retreat, central banks may be forced to keep hiking rates and that could keep depressing equity valuations and hurting Berkshire’s bottom-line performance. 

High inflation could erode purchasing power of Berkshire’s cash reserves

Another way in which inflation can hurt Berkshire is by diminishing the purchasing power of its cash reserves. By the end of Q2 2022, the conglomerate had cash and equivalents of approximately $30.5bn (all of its businesses combined) and roughly $95.9bn in short-term investments and investments in fixed-maturity securities.

If inflation keeps rising, Berkshire’s financial firepower could be diminished, as the value of the dollar would be hurt.

The extent to which the firm’s purchasing power will be affected is hard to determine but it will certainly be a factor that market participants will have to take into account to draft their forecasts for the Berkshire Hathaway share price.

Berkshire Hathaway fundamental analysis: Latest earnings

On 8 August, Berkshire Hathaway published its financial results covering the second quarter of the 2022 fiscal year. This section contains a summary of the most relevant figures listed in that report.

During the first semester of 2022, Berkshire produced total revenues of $133.71bn. The bulk of this amount came from the company’s insurance operations, as it produced $110.55bn in revenues during that period.

Meanwhile, Berkshire incurred losses of $38.29bn attributable to stockholders as a result of a $68.89bn loss that the company’s stock portfolio experienced during that period. 

The firm’s cash and equivalents stood at $26.53bn held by the insurance business and $4.07bn held by railroad, utilities and energy companies. The company held short-term investments in US Treasury Bills of $74.8bn, investments in fixed-income maturities of $21.14bn and investments in equity securities of $327.66bn.

Berkshire’s total assets ended the quarter at $909.86bn while the combined value of all notes payables and other borrowings (long-term debt) for both units stood at $119.08bn.

Analysts’ views: What could be expected from Berkshire Hathaway stock in 5 years?

Berkshire Hathaway’s extensive portfolio of subsidiaries, its intricate corporate structure, and the discretionary nature of its stock-picking activities make the firm a hard one to cover for analysts and complicates the task of forecasting Berkshire Hathaway stock price in 5 years.

This is reflected by the fact that just four analysts have provided 12-month forecasts for the stock, according to data from TipRanks, as of 27 October.

The most recent forecast, given by Brian Meredith at UBS, set a 12-month price target of $362 (lowered from $373), representing a potential 24.69% upside at the date of the report. Meredith maintained a ‘buy’ rating on BRK.B stock.

In regards to the firm’s outlook, analyst Gregory Warren from Morningstar commented: “We continue to believe that Berkshire, owing to its diversification and its lower overall risk profile, offers one of the better risk-adjusted return profiles in the financial-services sector (and remains a generally solid candidate for downside protection during market selloffs).”

He added:

“We continue to be impressed by Berkshire's ability in most years to generate high-single- to double-digit growth in book value per share, comfortably above our estimate of its cost of capital.

“We also believe that it will take some time before the firm finally succumbs to the impediments created by the sheer size and scale of its operations, and that the ultimate departure of Warren Buffett and Charles Munger will have less of an impact on future operating results than many investors believe.” 

The bottom line

While recent Berkshire Hathaway news and analysts’ forecasts may provide valuable insight into the company’s performance, they shouldn’t be used as a substitute for your own research.

Remember to perform your own due diligence before making an investment decision. And never invest or trade more than you can afford to lose. 

FAQs

Is Berkshire Hathaway a good long-term investment?

Berkshire Hathaway is run by Warren Buffett – an investor whose philosophy is that stocks should be held forever as long as the underlying business continues to demonstrate its fundamental strength. Investors can rest assured that Berkshire’s decisions are made with a long investment horizon in mind. This could make Berkshire a good vehicle for long-term investors who may prefer to trust Buffett with their money so he can invest it as he sees fit. 

However, despite Warren Buffett’s investment reputation, investors and traders should always perform their own due diligence before making an investment decision. And never invest more money than you can afford to lose.

Is Berkshire Hathaway a good investment?

The BRK stock price history indicates that in the past 10 years, the stock has delivered gains of 231%, compared to 171.3% produced by the S&P 500 and 327.3% produced by the US Tech 100 during that same period.

Remember that past performance does not guarantee future results. And never invest more money than you can afford to lose.

Will BRK ever split?

The Class B shares issued by Berkshire Hathaway entitle the holder to 1/15,000th of a Class A stock. These shares were issued to allow retail investors to incorporate Berkshire stock into their portfolios. As of 27 October, the price of BRK.B stock stands at approximately $290 a share. Berkshire could contemplate a stock split for its Class B shares in the future to reduce the price to the low-to-mid double-digits.

Markets in this article

BRKb
Berkshire Hathaway
424.67 USD
5.44 +1.300%
US500
US 500
5615.4 USD
27.5 +0.490%
US100
US Tech 100
20336.4 USD
115.4 +0.570%

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