Berkshire Hathaway’s Portfolio Is Up Sharply. Why Its Own Stock Is Lagging Behind.

Warren Buffett remains a talented stockpicker for Berkshire. (Paul Morigi/Getty Images for Fortune/Time Inc)

Key Points

About This Summary

• Berkshire Hathaway’s equity portfolio is up this quarter, led by Apple, Bank of America, American Express and five Japanese holding companies.
• Berkshire’s stock lags the S&P 500, down 9% from its May high, partly due to Warren Buffet stepping down as CEO at year-end.
• Berkshire’s book value should rise 5% this quarter, while the stock trades at 1.5 times book, in line with its three-year average.

Berkshire Hathaway’s equity portfolio is having a great quarter led by the largest holding, Apple , but Berkshire’s own stock continues to languish.

As the portfolio has appreciated, Berkshire’s own valuation has gotten more reasonable, enhancing the investment case for the stock.

Berkshire’s large holdings in Bank of America and American Express also have shown nice gains in the current quarter, as has the company’s investment of more than $30 billion in five Japanese holding companies.

Berkshire’s Class A shares, which gained 0.2% to $741,687 Monday, have risen 9% this year, putting them about five percentage points behind the S&P 500 index’s rise.  The class B stock ended Monday at nearly $494.

The A stock is down 9% from its record high of around $810,000 on May 2, the day before the Berkshire annual meeting, while the S&P 500 has risen over 15% since then.

Berkshire stock is lagging for several possible reasons. Investors have reacted negatively to CEO Warren Buffett’s surprise decision announced at the annual meeting to step down at year-end as CEO after 60 years at the helm. Buffett, 95, will remain chairman of the board.

Investors in recent months have favored technology and more aggressive “risk-on” stocks and Berkshire is one of the most defensive big stocks in the market due in part to its nearly $350 billion in cash. Property and casualty insurance stocks also have lagged behind the market lately on concerns about weaker insurance pricing ahead and Berkshire is the largest P&C company ranked by capital at about $300 billion.

Berkshire’s book value, or shareholder equity, should experience a nice gain in the current quarter due to the portfolio gains as well as operating profits.

Barron’s estimates that book value could rise to more than $485,000 per class A share on Sept. 30, up 5% in the quarter. Berkshire stock now trades for 1.5 times that book value estimate—in line with the three-year average—and down from a peak of 1.8 times in early May.

The $300 billion Berkshire equity portfolio is up more than $25 billion this quarter, Barron’s estimates, powered by Apple. The iPhone maker’s stock is up 25% so far this quarter to $256 and is approaching a record of $260 set late in 2024.

Berkshire owns 280 million shares of the iPhone maker (based on June 30 holdings), and that stake is now worth $71 billion.

The rally in Apple highlights CEO Warren Buffett’s mistake in selling more than 70% of Berkshire’s holding in the stock, with most of the sales coming last year. At the peak, Berkshire owned one billion shares. Berkshire continued to reduce the stake in the second quarter of this year, selling 20 million shares.

Barron’s estimates that Berkshire got about $190 a share on average for its Apple stock—and may have paid $25 billion in taxes on the sales. Buffett wrot e in his shareholder letter earlier this year that Berkshire paid almost $27 billion in taxes to the U.S. Treasury last year and much of it likely was related to the Apple sales.

The Berkshire Apple stake would be worth over $250 billion now if Buffett hadn’t trimmed it. As it stands, the proceeds are sitting in Treasury bills and cash earning about 4%.

Berkshire also has cut its stake in Bank of America by 40% to about 605 million shares and that looks like another mistake by Buffett. Those sales—occurring from last summer through the second quarter of this year—netted Berkshire about $40 a share, against the current share price of around $52.

The Apple and Bank of America sales reflect a conservative investment view taken by Buffett in recent years. The company has been a steady seller of stocks and made no major acquisitions. Among the few investments that seems to generate much enthusiasm for Buffett are the five Japanese trading companies. Berkshire has steadily boosted its stakes in them. One of those companies, Mitsui , disclosed over the weekend that Berkshire’s stake is now over 10%.

Berkshire has done well in those Japanese investments that date back to 2019 with the five stakes more than doubling in value to more than $30 billion.

Write to Andrew Bary at andrew.bary@barrons.com