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Berkshire Hathaway Defies Market Drop with 15% Gains in 2024

Berkshire Hathaway (NYSE: BRK.A, BRK.B) showcases resilience amid a market downturn, gaining 15% YTD while the S&P 500 falls 10%. Strong operating earnings growth and a significant cash reserve position it well for future opportunities.

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AI Rating:   8

Market Performance and Earnings

Berkshire Hathaway has displayed strong performance amid a broader market decline, with its shares rising 15% year to date compared to a drop of approximately 10% in the S&P 500. This could be attributed to investor confidence in the company's diversified portfolio and proven business model under CEO Warren Buffett.

Berkshire has experienced significant growth in operating earnings, which surged by nearly 27% year over year in 2024. This robust increase in earnings is crucial as Buffett emphasizes monitoring operating earnings over earnings per share (EPS) due to the volatility associated with mark-to-market accounting adjustments. Operating earnings increased from $27.6 billion in 2021 to $30.9 billion in 2022, $37.4 billion in 2023, and reached $47.4 billion in 2024. This consistent growth underlines the company's ability to maintain profitability through various economic conditions, which is a positive indicator for investors.

Free Cash Flow and Financial Position

As of the end of 2024, Berkshire Hathaway holds a record cash reserve of $334 billion. This strong liquidity positions the company strategically for potential market opportunities, including acquisitions, as cash can be utilized efficiently in a market downturn. Buffett's philosophy of waiting for the right opportunities rather than overpaying for acquisitions supports the idea that this cash reserve could be a catalyst for future growth if deployed wisely.

Valuation Considerations

The current price-to-book ratio (P/B) for Berkshire stands at 1.7, higher than Buffett's target range of around 1.2, which he considers a good value buy-back level. While the valuation appears lofty, the unique asset collection could justify this premium. Investors might consider a gradual investment strategy to mitigate potential downside risk given the current market conditions.

Berkshire's resilience during market volatility, coupled with its strong operational earnings and cash position, indicates a favorable outlook in the short to mid-term for stakeholders. However, potential investors should remain cautious about entering at a higher valuation.

Stocks:  BRK.A BRK.B