There is unlikely to ever be another Berkshire Hathaway (BRK.A) (NYSE: BRK.B). BRK.B is perhaps the most revered company in the investment community as CEO, warren buffetcan go down in history as the most accomplished investor of all time. Recreating what the Oracle of Omaha built is unlikely because it’s not just a holding company with billions of dollars of publicly traded stock on its balance sheet, but BRK.B owns outright dozens of companies that make up its business operations, including Geico, Duracell and Dairy Queen. In March 2022, BRK.B topped around $362.10 per share and fell -23.32% ($84.43) to $277.67. While BRK.B has fallen more than 20% since its 2022 peak, it is currently outperforming major indices in 2022. BRK.B has handled market volatility and uncertainty much better than indices like the SPDR S&P 500 Trust (TO SPY) is down -17.89% year-to-date, while the Nasdaq is down -26.52% year-to-date against BRK.B, down -7.69 %. I will review BRK.B’s latest 13F record and financials to determine if there might be a long-term opportunity to add BRK.B near its 52-week lows.
Review and recreation of Berkshire’s latest 13F folder
What BRK.B has amassed in his holdings is truly amazing. After going through his last deposit 13F, BRK.B has 47 different public investments worth $333.19 billion. I’m going to recreate folder 13F and look at BRK.B’s largest holdings, how much dividend it generates, and what share of each company BRK.B holds.
Above is my recreation of BRK’B’s investment portfolio. In my table, I have described the following data points:
- How many shares of each investment are held
- Total investment value
- % of BRK.B’s portfolio that the position represents
- The dividend each position pays
- BRK.B annual dividend income per position
- The market capitalization of each company or the total assets of the ETF
- BRK.B’s full ownership of each asset
After reviewing BRK.B’s holdings, its portfolio is certainly interesting. BRK.N holds 47 individual investments, with Apple (AAPL) being its largest holding. BRK.B owns 894.8 million shares of AAPL with a total investment value of $139.42 million. BRK.B owns 5.57% of AAPL. While owning 12.57% of Bank of America (BAC), 8.25% of Chevron (CVX), 29.22% of Occidental Petroleum (OXY), 26.57% of Kraft Heinz Company (KHC) and 9 .25% of The Coca-Cola Company (KO).
Among BRK.B’s investments, 31 positions pay dividends. Before BRK.B’s actual operating activities generate a single dollar of income, the 31 dividend-paying positions in BRK.B’s portfolio are expected to generate $5.22 billion in annual dividend income. BRK.B’s position in CVX is expected to generate $916.98 million in annual revenue, while BAC generates $888.88 million, AAPL generates $823.22 million and KO generates $704 million in dividend income . These 4 companies alone generate $3.33 billion in projected annual revenue for BRK.B. Many investors believe that BRK.B is the ultimate hybrid company due to the large amount of dividend income its holdings produce. BRK.B may continue to reinvest such dividends and organically increase its future cash flows or may take the cash dividends and apply that capital to acquiring new operating businesses or making new investments.
BRK.B Q2 report shows that in the 1st In the first half of 2022, BRK.B generated $3.25 billion in dividend income, an increase of 27.5% year-on-year. In the second quarter alone, BRK.B increased its dividend income by 58.3% year-on-year. To think that BRK.B generates this level of income from its passive investments is a bullish factor. Many companies don’t generate $5 billion in net income a year, let alone their invested capital.
Berkshire Financials and Operating Metrics
BRK.B is made up of 6 operating businesses in its consolidated financial statements, which include Insurance, BNSF, BHE, Manufacturing, McLane and Services and Retail. For anyone interested, BRK.B’s the annual report is available here, and its operating companies are near the end on page A-6. Browsing through BRK.B’s operating companies, many people would probably be surprised that GEICO, Acme, Benjamin Moore, Duracell, Dairy Queen, Helzberg Diamonds, NetJets, and See’s Candies belong to BRK.B.
From an operational standpoint, BRK.B generated $289.37 billion in revenue in the TTM. BRK.B generated $35.22 billion in cash from its operations which generated $20.78 billion in FCF. BRK.B produced $26.52 billion in EBITDA and $11.7 billion in net profit in the TTM in the TTM. BRK.B is set to have its biggest year of revenue generation in 2022. Compared to 2021, BRK.B generated an additional $13.28 billion (4.8%) in revenue in TTM. Looking at 1st half of 2022, BRK.B produced an additional $13.28 billion (9.93%) of revenue from that period in 2021. From an earnings before income tax (EBIT) perspective, BRK.B produced An additional $1.16 billion year-over-year.
BRK.B has a fortress of a balance sheet with $105.41 billion in cash and short-term investments, which equates to 17.22% of its current market capitalization. BRK.B has $461.21 billion in total equity on its balance sheet. Under long-term liabilities, BRK.B has long-term debt of $116.84 billion, of which $0 is due in 2022. BRK.B has not diluted shareholders, as there are 1, 5 million shares outstanding, compared to 1.6 million in 2019.
BRK.B has a forward P/E of 19.36 as the street estimates that BRK.B will generate $14.34 in EPS for 2022 and $15.57 in 2023. The street also projects that BRK.B will generate 335.27 billion in revenue for 2023, up from its revenue forecast of $269.04 billion. The market placed a multiple of 29.45x on BRK.B’s FCF, a P/S ratio of 2.14 and a forward P/E of 19.36. The question is, are BRK.B shares undervalued at these levels? It’s hard to say that BRK.B is overvalued because it has a history of generating profits in spades, with tens of billions of FCF produced every year. I think a better entry point might be on the horizon and would be much more interested in a market cap of $519.5 billion, as that would put its price at FCF at 25x. BRK.B’s market capitalization would have to fall by $92.52 billion or 15.12% for this to happen. As operationally proficient as BRK.B is, it’s hard for me to justify paying a higher FCF multiple for BRK.B than I would for AAPL, and AAPL has an FCF multiple of 23.28x (2 .5T / $107.58B).
BRK.B is one of the most interesting companies out there because its appeal is unlike any other company I can think of. Countless books have been written about Warren Buffett’s accomplishments and investment style, and we may not see another investor reach his level of notoriety. BRK.B is one of the most impressive companies as it strives to exceed $300 billion in annual revenue. it produces tens of billions of FCF, has over $100 billion in cash on its balance sheet, and is expected to generate over $5 billion in dividend income throughout 2022. I think BRK.B is a great investment long term and could look attractive at these levels. I’m waiting to see if I can re-enter this position at a lower valuation. If you own BRK.B I have the same philosophy as if you own AAPL, just buy it and keep it. Based on how BRK.B uses its cash, I don’t think it has the same growth potential as AAPL, so I’m waiting for a price below FCF valuation before pulling the trigger.