Is it too late to buy Berkshire Hathaway stock?

Berkshire Hathaway (BRK.A -1.17%) (BRK.B -1.27%) it is trading near an all-time high despite a lack of investment opportunities in recent years and several other legitimate investor concerns. On the other hand, there’s still a lot to like about Berkshire, and it would be a mistake to let its valuation scare you off.

With that in mind, here’s a quick rundown of the pros and cons of investing in Berkshire Hathaway right now, and why I don’t think investors are necessarily holding off.

Reasons to be pessimistic

Let’s get the negatives out of the way. One of my biggest rules of investing is that if I don’t understand the bear case for a stock, I haven’t done enough homework yet. And to be fair, there are some legitimate reasons why investors are hesitant to buy stocks right now:

• Scale. Berkshire recently became the first non-tech company to reach a trillion dollar market capitalization, an impressive feat. But as CEO Warren Buffett has openly admitted, it gets significantly harder to deliver huge returns as the business grows. And with the stock trading near an all-time high, many investors worry that it has become too expensive.
• Limited growth opportunities. Berkshire has found little success in finding attractive ways to put its capital to work for several years. Aside from its acquisition of Pilot Travel Centers, Berkshire hasn’t made a big acquisition in about a decade, and Buffett has been a net seller of the stock recently. As a result, more than a quarter of Berkshire’s market value is in cash and Treasuries, yielding annual returns of around 5%.
• Buffett’s age. Warren Buffett recently turned 94, and he won’t be running the show forever. In his last annual letter, he admitted to “playing in extra innings.” Since Buffett is still the CEO and has discretionary control over most of the company’s massive stock portfolio (as well as its buyback program), many are concerned that they will lose the Buffett magic in the not-too-distant future.

Reasons why Berkshire Hathaway is still worth buying

While there are certainly some legitimate concerns, I firmly believe that the good outweighs the bad and that the stock is worth buying, even near all-time highs. I’ll get to the scale and valuation issue in the next section, but Buffett’s growth opportunities and age aren’t as much of an issue as they might seem.

I sure would love to see Buffett find a massive opportunity to distribute a lot of money. But I would also argue that the recent lack of opportunity has created one of Berkshire’s greatest strengths: financial flexibility. With $277 billion in cash and short-term investments, Berkshire has an unmatched ability to take advantage of any opportunities that arise. If a deep recession or market crash were to follow, Berkshire would be in a great position to emerge in even better shape than it entered.

As for Buffett’s age, succession planning has been a major focus of Berkshire management for years. Greg Abel, who currently oversees Berkshire’s non-insurance operations, is ready to step in as CEO when needed, and Berkshire has two fantastic portfolio managers in Todd Combs and Ted Weschler who will be in charge of the equity portfolio . In short, the pieces are in place for Berkshire’s culture to live on for many decades to come.

Berkshire could still be a cheap stock. Here’s why.

As a final thought, I’d say that even at a trillion dollar valuation, Berkshire is a pretty cheap stock. After stripping out cash and the market value of its stock portfolio, the market values ​​Berkshire’s operating businesses at about $400 billion. And even excluding investment income, Berkshire generated nearly $31 billion in operating income over the past four quarters.

In short, Berkshire’s business is valued at roughly 13 times trailing 12-month earnings, despite impressive 26% year-over-year operating income growth through 2024 and a recession-proof nature. I would hardly call that expensive.