Berkshire just hit $1 trillion, but Warren Buffett signaled it’s time to take profits

I knew it would come. I just didn’t know when. of Warren Buffett Berkshire Hathaway (BRK.A 1.85%) (BRK.B 1.61%) the conglomerate just hit $1 trillion in market capitalization for the first time, joining the rarefied air occupied only by Microsoft, Nvidia, Apple, Alphabet, Amazonand Meta platforms. In fact, Berkshire Hathaway is the only non-tech company on the exclusive list.

Most investors are likely familiar with Buffett’s legend, as Berkshire has delivered a compounded annual return of 19.8% for nearly 60 years, surpassing S&P 500 index in process. $1,000 invested in Berkshire when Buffett took over would be worth more than $40 million today.

But is Berkshire stock a buy now? The company still has many of the attributes that made it so successful, including a diverse collection of wholly owned, high-margin businesses such as BNSF railroad and GEICO insurance, as well as a stock portfolio run by Buffett himself , the most admired investor. in history.

However, there is a signal that now may not be the best time to buy Berkshire stock, and it’s coming from a surprising place: Buffett himself. Read on to see why.

Image source: The Motley Fool.

Buffett puts the brakes on his favorite stock

Investors tend to focus on the stocks that Berkshire owns in its portfolio, but there is no stock that Berkshire buys more often than its own. The company changed its share buyback policy in 2018 from only buying back shares when it was less than 1.2 times book value to authorizing buybacks when the price is “below Berkshire’s conservatively determined intrinsic value “.

Since then, Berkshire’s buybacks have skyrocketed, with the company buying back about $75 billion worth of shares, or more than 200,000 of its high-value Class A shares.

However, as the stock has risen this year, up 29.4% year to date, Berkshire Hathaway has scaled back share buybacks. As you can see from the chart, Berkshire’s buybacks fell to their lowest level in more than five years in the second quarter.

BRK.A data by YCharts

While buybacks have slowed, Berkshire’s cash hoard has grown to $277 billion at the end of June after the company divested a large stake in Apple, its largest holding his

Instead of throwing that money back into the stock market or using it to buy back his own Berkshire stock, Buffett just left it in T-bills on the balance sheet. Buffett himself has lamented high stock market valuations and, holding $235 billion in Treasuries while slowing stock buybacks, seems to say that earning a 5% yield on Treasuries is a better return than he would get from ransom. its own stock right now.

According to Buffett’s preferred valuation metric, price-to-book value, Berkshire also looks more expensive than it has been in a long time. As you can see, its price-to-book value is now approaching 1.7, well above the 1.2 that was once the threshold for buybacks.

BRK.A data by YCharts

Is It Time to Sell Berkshire Hathaway Shares?

Berkshire Hathaway is a difficult company to value. He owns dozens of businesses in industries ranging from insurance to manufacturing to utilities to restaurants and has a massive stock portfolio.

Berkshire’s businesses generated operating income of $25.8 billion in the first half of the year, and Berkshire earned $25.7 billion from investments, making its $1 trillion valuation seem reasonable.

However, Berkshire is a slow-growth company right now, with revenue up just 3% in the first half of the year to $183.5 billion. These figures show that investors should not expect explosive growth from the stock, despite huge share price gains this year.

Berkshire’s recent growth and current valuation aren’t a reason to sell the stock, but after the stock is up nearly 30% this year, potential buyers may want to take a cue from Buffett and wait for a better price before buying.