3 Reasons to Love Berkshire Hathaway in 2019
Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) is the legendary financial conglomerate run by Warren Buffett and his partner Charlie Munger. Since Buffett purchased control of struggling New England manufacturer Berkshire Hathaway in 1965, he and Munger have grown Berkshire into a financial powerhouse worth a whopping $500 billion.
But even after that incredible run, 2019 could still be a terrific time to invest in Berkshire, whether you're adding to your stake or buying in for the first time. Here are three reasons why Berkshire Hathaway may be especially worth your dollars today.
Mountains of cash
In light of last quarter's severe volatility, investors may be looking for a safe place to park their money, and Berkshire has that in spades. As of the third quarter, Berkshire had roughly $104 billion in cash at the ready.
What's even better? Berkshire's cash inflows continue to grow thanks to Berkshire's large insurance businesses. Berkshire receives premiums every year from its various insurance subsidiaries, which Buffett and Munger can deploy at will. Thanks to the company's best-in-class underwriting, Berkshire's insurance operations are often profitable before investments (which is not always the case in the industry). That means that the premiums Berkshire receives, or "float," come at a zero or negative cost. You can think of this almost as a margin loan your broker actually pays you to take out.
In times of huge market drops like we saw in Q4, Berkshire's large cash pile, directed by the greatest investor of all time, is likely to find its way into bargains. And since Berkshire recently relaxed its share repurchase criteria, that money could even be used to buy Berkshire stock itself.
So even if you don't have any extra cash in your brokerage account to deploy if the market drops, by owning Berkshire you have the greatest investor of all time consistently "buying" on your behalf.
Betting on the U.S. as overseas markets tremble
Another reason Berkshire may make a great bet in 2019? Chalk it up to a belief in the good ol' U.S. of A. Berkshire Hathaway has some foreign businesses, such as Israel's Iscar and a few new venture investments in India, but the vast majority of Berkshire's businesses still reside in the U.S.
Why is that important? A few reasons. First, despite concerns over global growth, the U.S. seems to be doing quite well, at least compared to overseas markets. China is currently dealing with the impact of U.S. tariffs and an economic slowdown. Meanwhile, Europe is dealing with a potential messy breakup with the United Kingdom this year, along with financial problems in Italy and violent worker protests in France.
And while many have questioned the Federal Reserve's decision to raise interest rates in December, the Fed did so because U.S. growth has been robust. While growth is expected to slow next year, 2018 was the fastest growth in a while in the U.S., and next year is still projected to be "above trend" according to officials.
Finally, Berkshire is a huge beneficiary of the recent U.S. corporate tax cuts. Berkshire had traditionally paid a relatively high tax rate compared to many other large companies (especially tech). Since Berkshire owns many highly profitable companies with competitive advantages over rivals, virtually all of those savings should fall right to Berkshire's bottom line.
Insiders are buying
And don't just take my word for it -- a key Berkshire insider just bought a hefty amount of Berkshire stock. Ajit Jain, who heads Berkshire's super-important insurance operations, bought roughly $20 million worth of Berkshire A shares on December 18 at an average price of $296,515.01. That's just above current prices, so you can actually now buy at a discount to Jain.
While Jain is no doubt a rich man, $20 million is still a meaningful amount of pocket change for sure. Given that Jain's primary occupation is assessing the risk and reward of insurance underwriting, I'm thinking he knows a bit about assessing Berkshire's intrinsic value. Buffett promoted Jain to the board of directors last year, along with Greg Abel, who runs Berkshire Hathaway's energy operations. The promotion suggested Jain himself could be a successor to Buffett and Munger. And more importantly, that he's really, really smart.
Berkshire is a low-risk bet in a volatile market
With a fortified balance sheet, a collection of wide-moat U.S. businesses, and insiders buying the stock, Berkshire could make for an ideal defensive purchase for those worried about volatility in 2019. After all, Berkshire has made some of its most profitable investments in times of market distress, and with the stock about 15% off its highs, now could be a great time to start -- or add to -- a position.
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Billy Duberstein owns shares of Berkshire Hathaway (B shares). His clients may own shares of some of the companies mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.