Berkshire Hathaway, led by Warren Buffett, refrained from repurchasing any shares during the third quarter. This could indicate that the CEO perceives the company’s stock as being overvalued. Currently, Berkshire Hathaway holds more than $325 billion in liquid assets.
Here’s a real-time snapshot of Warren Buffett and Berkshire Hathaway’s cash reserves.
Now standing at $325.2B. pic.twitter.com/G0pkjpSm7n— Sven Henrich (@NorthmanTrader) November 2, 2024
Recent SEC filings indicate that the firm has broken a six-year trend of stock buybacks. Instead, Berkshire engaged in net stock selling during this period, which resulted in an increase in its cash reserve to unprecedented levels.
Even when adjusting Berkshire Hathaway’s cash to a more precise estimate of $305-310 billion, it still surpasses the selected stock valuations curated by @chartrdaily. pic.twitter.com/yuevit7gtb
— Kevin Carpenter (@kejca) November 4, 2024
Market analysts suggest that Berkshire Hathaway’s current strategy may indicate an overvaluation of its stock.
Following the Q3 2024 results, Morningstar’s Greggory Warren retained his fair value assessment for Berkshire Hathaway.$BRK.A: $700,000$BRK.B: $467
From 2014 to 2019, Warren participated as an analyst at Berkshire AGMs.
— Kevin Carpenter (@kejca) November 3, 2024
According to Cathy Seifert, an analyst at CFRA Research, the decision to abstain from share repurchases leads many to question, ‘If they aren’t buying back their own stock, why should I?’ Buffett has consistently maintained that he will only consider repurchasing shares when they are priced below their intrinsic value.
Berkshire’s Class A shares are presently valued at approximately 1.6 times their book value.
Berkshire expands cash reserves, avoids share repurchases
Historically, the company has stated that it will not engage in buybacks if shares are priced above 1.2 times book value.
On Monday, Class A shares of Berkshire Hathaway closed at $664,750. This represents a rise of around 21% year-to-date, slightly exceeding the S&P 500’s 20% increase during the same timeframe. He has been very clear that share buybacks will not occur if they believe the company is overvalued,” remarked Robert Korajczyk, a finance professor at Northwestern University’s Kellogg School of Management.
Aswath Damodaran, a finance professor at NYU Stern School of Business, indicated that Berkshire’s prudent approach may stem from a belief that the market is currently overpriced. This decision highlights Buffett’s cautious worldview concerning the economy and the stock market’s condition. Overall, this gives the impression that Buffett harbors significant concerns regarding the economic landscape and market conditions.
“It reflects a risk-averse mentality, characteristic of an investor who is prepared to wait for an optimal buying opportunity,” stated Russ Mould, an analyst at AJ Bell. As Berkshire Hathaway continues to build its cash reserves, it suggests that Buffett does not see any attractive investments at this time. The company’s cash increased from $276.9 billion in June to $325.2 billion now.
“If they cannot identify valuable investment options at the moment, it is logical to hold cash and wait for a market correction before making acquisitions,” Korajczyk explained.
