Given Warren Buffett’s outstanding investment track record, many investors are watching closely. Berkshire Hathaway‘s (BRK.B -0.39%) (BRK.A -0.26%) investments. The company’s quarterly 13-F filing with the Securities and Exchange Commission (SEC) gives investors an idea of what the Berkshire boss and his investment lieutenants are optimistic about.
A close look at Berkshire Hathaway’s portfolio today shows, first and foremost, that Buffett loves Apple (AAPL -0.82%). A review of the company’s recent 13-F filings reveals that the stock is by far Berkshire’s largest holding, accounting for roughly 42% of the conglomerate’s stock portfolio. Other interesting bets can also be found, including recent purchases of Western Petroleum, financial ally, Markeland more.
While all of these companies are great investment ideas, it’s not any of the names in Berkshire’s stock portfolio that excites me the most. In fact, some investors may be so busy scouring Berkshire’s portfolio for ideas that they’re overlooking Warren Buffett’s best stock: Berkshire Hathaway itself.
Now that this high-quality business is down around 24% from an all-time high hit earlier this year, investors may want to think hard about buying shares as it trades lower. Stocks have arguably become too cheap to ignore.
Strong subsidiary operating profit
While Berkshire’s reported net income fluctuates significantly from year to year due to the changing value of the company’s stock portfolio, investors can easily verify Berkshire’s diversified set of subsidiaries by looking at reported operating earnings. During the first six months of 2022, the investment giant generated $16.3 billion in operating profit, up from $13.7 billion in the same period a year earlier. Using this figure to calculate annualized operating profit on a run-rate basis, the company is generating about $32 billion in annual operating profit. With a market capitalization of $610 billion, the shares trade at just 19 times the annual operating profit of the Berkshire subsidiary group.
Of course, if you subtract the value of the company’s $338 billion stock portfolio from this market capitalization, you could say that the Berkshire subsidiary group is theoretically trading at just 8.5 times operating profit.
A strong stock portfolio
But investors shouldn’t discount the potential of Berkshire’s stock portfolio. Given the Oracle of Omaha’s history of strong investment performance, and considering we are in the midst of a bear market, Berkshire’s stock holdings are likely to be collectively undervalued at this point. I certainly think Berkshire’s largest holding, Apple, is undervalued.
A low risk business
Finally, there is the fact that when investors buy Berkshire Hathaway, they are essentially buying a curated selection of high-quality US assets, not just one stock. This means that there is a much lower risk that something could go terribly wrong with the company.
Considering Berkshire’s diversified quality subsidiary business, attractive stock portfolio, and cheap valuation (1.3x book value), I think Berkshire Hathaway is the most attractive Warren Buffett stock today. And Buffett apparently agrees that the stock is a buy; Berkshire bought back shares worth about $5 billion this year, and the investor has explicitly stated that he would not buy back the shares unless he believes they are significantly undervalued.
Ally is an advertising partner for The Ascent, a Motley Fool company. daniel sparks has positions in Apple and Berkshire Hathaway (B shares). its clients may own shares of the companies mentioned. The Motley Fool has posts and recommends Apple, Berkshire Hathaway (B shares), and Markel. The Motley Fool recommends the following options: Long January 2023 $200 Call on Berkshire Hathaway (B-stock), Long March 2023 $120 Call on Apple, Short January 2023 $200 Put on Berkshire Hathaway (B-stock), short January 2023 $265 Call on Berkshire Hathaway (B shares) and short $130 March 2023 calls on Apple. The Motley Fool has a disclosure policy.