Berkshire Hathaway is coming off one of its worst stints since its founding back in 1965, relative to the S&P 500. The stock’s total return is lagging 44% behind the S&P 500’s since the start of 2019. Hitherto, it’s paid handsomely to buy Berkshire [$BRK.A] after bad stretches, even the 1974-75 bear market and the 1999 tech bubble. Berkshire, for instance, gained 129% in 1976. Investors now seem apprehensive about what happens when 90-year-old Buffett relinquishes control.
The conglomerate’s Class A shares, trading at $338,500, look like a bargain at 1.2 times Barron’s projected year-end book value of about $279,000 a share—against an average of 1.4 times since 2015. Buffett has said that Berkshire’s intrinsic value is considerably above 1.2 times book. The Class B shares trade a bit more modestly around $222.
Berkshire is both a defensive play, thanks to its cash stockpile of $145 billion, and a reopening play, because of its many economically sensitive businesses. “Berkshire shares represent a solid opportunity for investors looking for stocks to own in an economic recovery,” says James Shanahan, an Edward Jones analyst who has a Buy rating on the stock.
Mr. Shanahan hasn’t declared a price target yet, but if book value swells 8% in 2021, the stock could touch $400,000 a share, assuming an expansion of its multiple of 1.3 times book. It’s encouraging that Warren decided to buy back a record $9 billion of stock in Q3, or nearly 2% of the shares outstanding. That pace may continue in the current quarter, as the stock continues to trade cheaply.