Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) stock has returned 19% year to date, easily outperforming the 3% decline in the S&P 500 (SNPINDEX: ^GSPC). That large discrepancy underscores the idea that Berkshire’s diversified business makes it a defensive investment option.
Last weekend, the company hosted its annual shareholder meeting in Omaha, Nebraska. The event reportedly drew about 20,000 people. As usual, CEO Warren Buffett shared many illuminating insights about the stock market and broader economy. But the most surprising announcement was undoubtedly that he plans to step down later this year.
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With Buffett leaving Berkshire, is the stock still a buy? Here’s what investors should know.
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Berkshire has a record amount of cash, but Buffett has struggled to find compelling investment opportunities
Berkshire is a holding company with subsidiaries that operate across a range of industries, including freight rail transportation, manufacturing, retail, energy, and utilities. But its core business is insurance. Shortly after taking control of Berkshire in 1965, CEO Warren Buffett shifted its focus to insurance. That decision was brilliant in hindsight.
Buffett has invested the company’s insurance float — a term that refers to policy premiums that have not yet been paid out in claims — to great effect over the years, sometimes acquiring entire businesses and other times purchasing stock. As proof, Berkshire’s book value per share, a good proxy for changes in intrinsic value, increased more than 200% over the last decade. Meanwhile, the S&P 500 returned 171% during the same period.
However, Buffett and his co-investment managers Ted Weschler and Todd Combs have found it increasingly difficult to put cash to work in recent years, likely because valuations have been elevated across the stock market. Consequently, Berkshire has been a net seller of stock in the last 10 quarters. The company also held a record $348 billion in cash and equivalents on its balance sheet as of March 31, 2025.
Buffett explained the problem in a recent letter to shareholders. He wrote:
There remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and by others. Some we can value; some we can’t. And, if we can, they have to be attractively priced. Outside the U.S., there are essentially no candidates that are meaningful options for capital deployment at Berkshire. All in all, we have no possibility of eye-popping performance.
Berkshire stock is historically expensive, and Buffett has not repurchased shares in the last three quarters
Berkshire reported lackluster financial results in the first quarter of 2025. Operating earnings, which exclude the impact of unrealized gains and losses on equity investments, declined 14% to $9.6 billion. Modestly strong results in the freight rail transportation and energy businesses were more than offset by a decline in insurance underwriting income, which itself reflected significant losses from wildfires in Southern California.
Berkshire shares currently trade at 1.8 times book value, the highest valuation multiple at any point in the past 15 years. That screams overvalued. And Buffett just sent investors a clear message to the same effect, albeit a nonverbal one: He did not repurchase shares in the first quarter.
That is particularly consequential because Buffett repurchased shares in 24 straight quarters before pausing in May 2024. That means, in his estimation, Berkshire stock has been less attractive over the past year versus any other point in the previous six years. Remember, the company has plenty of cash on its balance sheet, so there is only one reasonable explanation: Buffett thinks the stock is too expensive.
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Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.
