Berkshire Hathaway had one of its worst days of relative performance versus the S&P 500 during the past year. Its Class A shares fell 1.6% Wednesday, compared with a 0.6% gain for the broader market.
A variety of relatively minor factors, rather than a single piece of major news, seem to be behind the decline. While Reuters reported that Berkshire’s Pilot unit, the country’s largest operator of truck stops, was pulling out of the oil-trading business, that isn’t likely to have moved the needle.
Even if there were some trading losses in that unit, they would likely be insignificant for Berkshire given its $1 trillion market value. Pilot had no immediate comment on any possible losses. It said it is “focused on delivering reliable fuel supply to our travel centers and wholesale customers across North America.”
Berkshire’s Class A stock finished at $691,500, down 1.6% while the Class B shares ended at $460.51, down 1.7%. The S&P 500 gained 0.6% to 6086, ending just shy of a record.
CFRA analyst Cathy Seifert said that the stock can bounce around in the short term, but offered some possible explanations for the decline. First, Seifert noted that Apple stock, Berkshire’s biggest equity holding as of Sept. 30, has been weak this year, falling 11% to around $224.
Berkshire cut its stake in Apple by two-thirds, to 300 million shares, in the first nine months of 2024. It isn’t clear whether Berkshire has cut that stake further since then.
CEO Warren Buffett said at the annual meeting in May that Apple would likely be the company’s largest holding at the end of 2024, implying a stake of at least 200 million shares. Berkshire will reveal its year-end Apple holding as part of its 13-F report on its U.S. equity holdings in mid February.
Second, Seifert said, there could be some profit-taking after the stock narrowly topped the S&P 500 in 2024. The Class A shares gained 25.5%, about a half percentage point more than the market.
Insurance losses from the Los Angeles fires shouldn’t be a major issue for Berkshire. Although the company is the largest U.S. property and casualty insurer, its main focus is on auto insurance via Geico and reinsurance. While Berkshire may incur some losses, primary P&C insurers are expected to bear much of the financial damage, estimated at $25 billion or more.
It was also a bad day for value stocks Wednesday. The Russell 1000 value index lost about 0.6%, and Berkshire is the largest value stock in the market.
Berkshire Class A stock now has a gain of 1.6% this year, compared with 3.7% for the S&P 500.
With Buffett now 94, health is always an issue. But the Berkshire CEO told The Wall Street Journal recently that he feels good and has no plans to give up his job. Barron’s has written that one option for Buffett would be to remain chairman and relinquish the CEO role to his likely successor, Berkshire executive Greg Abel.
A turning point could come for the stock in late February or early March, when Berkshire is expected to report its fourth-quarter results. The FactSet consensus forecast is upbeat, calling for operating earnings after taxes to rise 16% to nearly $7,000 per Class A share, or more than $10 billion.
Berkshire likely will benefit from the dollar’s strength, which will cut the value of its foreign-currency debt, denominated mostly in yen. That could provide a boost of close to $1 billion.
Book value is expected to have ended 2024 at around $450,000 per Class A share, meaning the stock trades for just over 1.5 times our estimate of year-end book value. That price/book ratio is in line with the average over the past few years.
Berkshire remains probably the most defensive megacap stock given its more than $40 billion of annual earnings and over $300 billion of cash. But defense isn’t in favor in the current tech-driven bull market.