Berkshire’s Portfolio and Valuation Rebound in Second Quarter

Recent performance

Berkshire Hathaway (BRK.B) stock has fallen 2.0% in the last month and risen 15.3% in the last year. In comparison, the S&P 500 (SPY) has risen 3.0% over the last month and 14.3% over the last year. The stock has underperformed in recent months due to the decline in portfolio value and expected delay in the addition of new companies. In the second quarter, lower claims in insurance, continued growth in BNSF and manufacturing could boost Berkshire’s stock performance.

Berkshire’s Portfolio and Valuation Rebound in Second Quarter

Berkshire Hathaway’s revenue is expected to grow ~7.0% to $61.6 billion in the second quarter, aided by manufacturing, higher insurance premiums, services growth, and BNSF. Wall Street expects the company’s earnings per share to rise steeply by 32.5% mainly due to lower claims and lower taxes.

Premium on valuations to continue

Berkshire Hathway is an actively managed diversified fund by Buffett and Munger. The company’s diversification and track record of beating the broad index allows it to command a premium over peers.

Berkshire is trading at a one-year forward PE (price-to-earnings) multiple of 20.1x and a trailing enterprise value-to-EBITDA (earnings before interest, tax, depreciation, and amortization) multiple of 13.81x.

While Berkshire Hathaway’s trailing-12-month PE multiple is 10.7x due to investment gains, other peers (XLF) General Electric (GE) and Chubb (CB) are trading at a forward PE multiple of 13.3x and 11.8x, respectively.

Portfolio review

Berkshire’s investment portfolio is expected to see some rebound in valuation in the second quarter. Berkshire Hathaway’s major holdings to date in the second quarter were as follows:

  • Wells Fargo (WFC) rose 8.4%.
  • Kraft Heinz (KHC) fell 2.6%.
  • Apple (AAPL) rose 15.0%.
  • Coca-Cola (KO) rose 3.0%.
  • American Express (AXP) rose 11.0%.
  • IBM (IBM) fell 2.6%.

The rise in portfolio valuations would reflect in its reported performance, according to new accounting rules. However, the company’s core operating performance would be key to determine its overall growth and valuations.