Warren Buffett’s Berkshire Hathaway (BRK.B-US) has never been more bullish than it is now, after falling more than 15% from an all-time high hit in March , the current share price is very attractive.
Benefiting from a 56% year-on-year increase in investment income, the group’s second-quarter operating profit excluding foreign exchange gains rose 22% year-on-year, with annual after-tax operating profit exceeding $30 billion.
CEO Buffett’s stock purchases this year, including Chevron (CVX-US), have helped boost dividend income, and rising short-term interest rates have boosted interest income from Berkshire’s $105 billion in cash and cash equivalents .
Berkshire’s A shares of common stock are currently trading at about $448,000, 1.3 times their Sept. 30 book valuation and an average of 1.4 times in recent years. Based on this year’s expected earnings, the price-to-earnings ratio of 22 is quite attractive given the company’s financial strength and defensive attributes.
Most analysts on Wall Street who track Berkshire have a neutral rating on the stock, but they may not trust Buffett enough. Morningstar analyst Greggory Warren sees the company’s stock as “moderately undervalued” with a broad moat outside its business. He set a price target for Berkshire A shares at $535,000.
Buffett, who will turn 92 at the end of this month, is continuing to look for so-called “elephant-level acquisition targets.” Some people think it may be Occidental Petroleum (OXY-US), because Berkshire currently holds more than 20% of its shares. Acquisitions, which could cost another $60 billion, are the way to go from the company’s balance sheet.
Many Berkshire shareholders would like to see Buffett execute more aggressively on his treasury stock. Berkshire only executed $1 billion in treasury shares in the second quarter of this year, down from the $3.2 billion in treasury shares executed in the first quarter. Executed treasury shares averaged $7 billion per quarter in 2021.
U.S. stocks bear market is over, the next thing is to buy
Jim Paulsen, chief investment strategist at The Leuthold Group, believes the market may be on the “very edge of a new easing cycle” as the Federal Reserve turns restraint after raising interest rates in July. He continued to be optimistic about a “nice rebound” in stocks a month ago, up about 10% so far.
While the Nasdaq Composite is still down 16.6% so far this year, it has risen more than 20% from its June lows and speculative stocks are actively trading, led by Cathie Wood’s Ark Innovation Fund. ARKK-US). The fund is up about 40% since mid-June, with its biggest holdings including Tesla (TSLA-US) and Roku (ROKU-US).
Paulsen thinks the Fed will raise rates by less than market expectations for the rest of the year. He pointed to recent factors such as a weaker dollar, lower mortgage rates and a strengthening junk bond market. “As an equity investor, do you want to miss the start of a new easing cycle?”
