Is Berkshire Hathaway the next $1 trillion stock?

Posted: 7 January 2022 6:33 pm
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The Buffett-led conglomerate would join the likes of Apple, Microsoft, Amazon, Alphabet, Meta Platforms and Tesla.

Warren Buffett’s Berkshire Hathaway (BRK.B) is on a roll, up 6% so far in 2022 in what’s largely been a down market. The stock is up 14% in the last six months and 37% in the last year.

Individually, it’s outperforming the S&P 500, which gained “only” 23% in the last 12 months.

The stock is breaking out, and that’s brought speculation that Berkshire could be on the road to $1 trillion in market cap. There’s still a way to go, but here’s what you need to know if you want to hop on board.

What is Berkshire Hathaway and where does it currently stand?

Berkshire Hathaway is a conglomerate holding company headquartered in Omaha, Nebraska and owned by billionaire Warren Buffett.

The company wholly owns popular names such as GEICO, Duracell, Brooks, Dairy Queen, Fruit of the Loom and Helzberg Diamonds, among others, and owns significant minority holdings in Kraft-Heinz, American Express, Coca-Cola and Apple.

Berkshire Hathaway has two classes of common stock designated Class A (BRK.A) and Class B (BRK.B). Its Class A stock is the company’s original stock offering and is known for its astronomical price per share. Shares of BRK.A are currently trading around $478,812.

The company’s Class B stock was first issued in 1996. In 2010, Berkshire Hathaway issued a 50-to-1 stock split, which gives a share of Class B common stock the rights of 1/1,500th of a share of its Class A common stock. Shareholders of Berkshire Hathaway Class A common stock can convert one share at any time to 1,500 shares of Class B common stock. But Class B shares cannot convert into Class A shares.

Berkshire Hathaway’s Class B stock currently trades for around $318 per share. With 1.3 billion shares outstanding, the company has a market capitalization of about $713 billion.

Why it might not reach the $1 trillion mark

Some investors have been disappointed about sub-market returns in recent years, as value stocks have been outpaced by growth stocks.

Over the last five years, Berkshire Hathaway saw a total return of 92%, trailing the S&P 500’s 126%. Meaning, a value investor could have otherwise just bought the Vanguard S&P 500 ETF (VOO) and outperformed.

Growth-oriented investors may be wondering why the company’s staggering cash pile isn’t being put to work. Berkshire Hathaway holds $149.3 billion in cash on hand as of September 30, when the company released its most recent quarterly report. These investors may point to the opportunity cost of holding this cash on the sidelines versus the potential returns it could make on investments.

Why it could reach $1 trillion in market value

That said, Berkshire’s stock saw improved returns last year. So far, 2022 is showing a shift from growth stocks toward stable stocks and value.

Buffett’s bet on Apple (AAPL) is also paying off. Berkshire’s 5% stake in the tech giant is worth around $160 billion as Apple hovers around the $3 trillion mark. The recent gain in Apple shares is making Berkshire stock more appealing by lifting the company’s value. Apple’s market cap has tripled in less than four years, and experts believe the stock has more room to run.

Who’s in the trillion-dollar club?

Apple, Microsoft (MSFT), Alphabet (GOOGL) and Amazon (AMZN) are all currently valued well over $1 trillion.

Apple hit the $1 trillion mark in 2018, becoming the first publicly traded company to do so. Amazon briefly crossed $1 trillion later on in 2018 before falling back below the mark. The stock returned above the milestone in January 2020 following strong fourth-quarter 2019 results.

Microsoft hit $1 trillion in April 2019 on strong earnings. Alphabet surpassed the $1 trillion mark in January 2020. In June 2021, Meta Platforms (FB), formerly Facebook, closed above the $1 trillion market cap, though the stock has since fallen below $1 trillion. And in October 2021, Tesla (TSLA) eclipsed the $1 trillion mark for the first time, becoming the sixth US company to hit the milestone.

The other stocks closest to that mark are Nvidia (NVDA) and Taiwan Semiconductor Manufacturing (TSM). Nvidia has a market cap of around $683 billion, while Taiwan Semiconductor Manufacturing is valued at around $646 billion.

Roughly one-third away

Berkshire will need to gain roughly one-third of its value to reach the $1 trillion mark, so a repeat of the last 12 months would get it there. Buffett is historically a rewarding bet, but of course, there are no guarantees.

At the time of publication, Matt Miczulski owned shares of AAPL and AMZN.

The value of any investment can go up or down depending on news, trends and market conditions. We are not investment advisers, so do your own due diligence to understand the risks before you invest.

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