Key Points
Berkshire is scheduled to report second-quarter earnings on Saturday, Aug. 2.
There are a few numbers that Berkshire investors will be watching closely.
Berkshire’s stock looks like a strong value right now.
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Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) presents its earnings reports a little differently. For one thing, management doesn’t hold quarterly earnings calls like most companies do. And CEO Warren Buffett insists on releasing earnings reports on Saturdays, so investors will have plenty of time to digest the numbers before the stock market opens.
There are a few key numbers investors will be watching when Berkshire reports its second-quarter results, expected on Saturday, Aug. 2. Berkshire’s operating earnings from its businesses is the most obvious example. There’s also the company’s cash stockpile, which reached an all-time high of $347.7 billion at the end of the first quarter.
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Finally, while we won’t know what specific stocks Berkshire bought and sold until a few weeks after its earnings report when it has to file with the government, we can typically figure out if Berkshire was a net buyer or seller of stocks during the quarter by looking at the reported cost basis of its investment portfolio. And we’ll also get details about whether Berkshire decided to buy back any of its own stock.
In this article, I’ll discuss why this trillion-dollar company could be a solid investment before earnings.
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Berkshire should be more valuable now
During the second quarter, which is the period Berkshire is getting ready to report, the S&P 500 increased by 10.4%, and many of Berkshire’s top stock holdings performed quite well. Although Apple (NASDAQ: AAPL) fell slightly during the quarter on tariff concerns, Berkshire’s second- and third-largest investments, American Express (NYSE: AXP) and Bank of America (NYSE: BAC), increased by 20% and 15%, respectively, during the second quarter. Despite all of this, Berkshire’s stock is significantly lower than where it started the quarter, mainly because CEO Warren Buffett announced his retirement at the company’s May annual meeting.
Also, while we won’t know Berkshire’s stock portfolio activity for the second quarter until mid-August, it’s highly likely that Berkshire’s already massive $348 billion cash stockpile has grown even larger. However, as I’ll discuss in a bit, I also wouldn’t be at all surprised to learn that Berkshire had resumed buybacks in the second quarter, which could limit the growth of the company’s cash.
Finally, Berkshire has a collection of (mostly) tariff-resistant businesses. Of course, there could still be some secondary impacts of tariffs on businesses that operate exclusively in the U.S., but Berkshire is more insulated from the impacts of import tariffs than most.
A better value than you might think
At the current stock price, Berkshire Hathaway has a market cap of about $1.02 trillion, which is significantly less than just a couple months ago, before Buffett announced his planned retirement. Meanwhile, the value of the stock portfolio has increased significantly, and Berkshire still has the same (or more) cash.
Think of it this way. Berkshire’s stock portfolio is worth approximately $292 billion as of this writing. Removing that and the $348 billion in cash shows a valuation of about $380 billion for Berkshire’s operating businesses.
We’ll get updated numbers soon, but Berkshire has generated about $33 billion in operating profit from its businesses over the past four quarters, excluding investment income. This shows that the market is valuing Berkshire’s businesses at just 11.5 times operating earnings. The last time I looked at the numbers was late May, and this ratio was 14. That’s why I wouldn’t be shocked if we find out Berkshire resumed buybacks.
Is Berkshire a buy before earnings?
To be sure, I have no idea what Berkshire Hathaway’s earnings will be, and some parts of the report (insurance underwriting income, for example) can be rather unpredictable. But the bottom line is that this is a rock-solid business trading well below highs at a time when the S&P 500 is near its all-time peak.
Warren Buffett’s departure isn’t likely to have any massive impact on the day-to-day business; Berkshire still has an excellent team of leaders; and the company has unmatched financial flexibility to pursue opportunities if and when they arise. Berkshire is already one of the largest stock investments in my portfolio, but if the current price level persists, I’m likely to add shares. It is a buy before earnings.
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Bank of America is an advertising partner of Motley Fool Money. American Express is an advertising partner of Motley Fool Money. Matt Frankel has positions in American Express, Bank of America, and Berkshire Hathaway. The Motley Fool has positions in and recommends Apple, Bank of America, and Berkshire Hathaway. The Motley Fool has a disclosure policy.
