Berkshire Hathaway Stock Dips Amid Profit-Taking and Sector Trends

Berkshire Hathaway experienced one of its weakest relative performances against the S&P 500 this past year, with its Class A shares falling 1.6% on Wednesday, compared to the S&P 500’s 0.6% gain, which ended near record highs. A mix of factors, rather than a single major event, appears to have driven the decline.

Key Factors Behind the Drop
1. Apple’s Underperformance:
- Apple, Berkshire’s largest equity holding, has fallen 11% year-to-date, reaching approximately $224 per share.
- Berkshire had reduced its Apple stake by two-thirds in the first nine months of 2024. However, as of May, CEO - Warren Buffett suggested the company would still hold at least 200 million shares by year-end.

2. Profit-Taking:
- Berkshire’s stock narrowly outpaced the S&P 500 in 2024, with Class A shares rising 25.5%, creating opportunities for profit-taking.

3. Insurance Sector Losses:
- While Berkshire is the largest U.S. property and casualty insurer, losses from the Los Angeles wildfires—estimated at $25 billion or more—are unlikely to have a significant impact, as primary insurers are expected to bear most of the financial burden.

4. Value Stocks Under Pressure:
- The Russell 1000 Value Index, which tracks the performance of value stocks, declined 0.6% on Wednesday. Berkshire, as the largest value stock, was caught in this broader trend.

Berkshire’s Financial Position and Outlook
Despite the recent dip, Berkshire remains a robust defensive play:

- Earnings Power: Annual earnings exceed $40 billion, supported by a cash reserve of over $300 billion.
- Valuation: Its stock trades at about 1.5 times book value, aligning with historical averages.
- Currency Impact: The dollar’s strength could reduce the value of its foreign currency-denominated debt, adding nearly $1 billion to its earnings.

Looking ahead, analysts expect Berkshire to report 16% higher operating earnings for Q4, reaching nearly $7,000 per Class A share. These results, alongside Buffett’s insights, will be disclosed in late February or early March.

The Buffett Factor
At 94 years old, Buffett’s health continues to be a topic of interest. While he has stated he feels well and has no plans to step down, speculation about succession remains. One possibility is Buffett transitioning to chairman while Greg Abel, a senior Berkshire executive, assumes the CEO role.