Berkshire Hathaway (NYSE: BRK-B)(NYSE: BRK-A) President and CEO Warren Buffett knows a thing or two about investing, to say the least. His investment prowess helped Berkshire shares grow at an average rate of 20% per year between 1965 and 2019, or a total of 2,744,062%. This erased the S&P 500 the return of the index over the same period. The popular index increased by 19,784% (including reinvested dividends) during this period.
With such a brilliant track record, it’s worth checking out what the Oracle of Omaha conglomerate buys the most. Thankfully, Buffett’s top stock pick for 2020 is easy to spot, as there are stocks of one company he spends a lot more money on than anything else: Berkshire Hathaway himself. The company is buying back its own shares in droves, signaling investors that Buffett believes Berkshire shares are undervalued.
Buffett just bought an additional $ 9 billion of this stock
In a filing with the Securities and Exchange Commission released earlier this month, Berkshire Hathaway revealed that it bought $ 9 billion worth of its own stock in the third quarter – more than the company did never spent redeeming the stock in a single year.
Buffett’s decision to spend billions buying back Berkshire shares extends the famous investor’s growing bullish trend on the stock. The company has continued to increase its takeovers recently. In the first and second quarters of 2020, Berkshire buyouts totaled $ 1.7 billion and $ 5.1 billion, respectively.
For background on how aggressive Buffett’s recent Berkshire share buybacks are, note that the company only spent $ 4.9 billion to buy back shares in 2019. Even more, Berkshire is now spending more money by buying back its own shares than any other publicly traded company except Apple (NASDAQ: AAPL). Of course, the tech company has a market cap four times the size of Berkshire and brings in $ 73 billion in free cash per year, so it’s fairly easy for the iPhone maker to spend more than Berkshire.
Should you also buy?
When Buffett aggressively buys back Berkshire shares, it means he thinks the shares are undervalued relative to their long-term outlook. Unlike some companies that implemented a share buyback program without considering the stock price at the time, Buffett and his investment partner Charlie Munger only buy back shares when they think they are doing a good job. case.
“If the reduction in price to value (as we estimate it) widens, we will likely become more aggressive in buying stocks,” Buffett said in Berkshire’s latest annual letter to shareholders. “However, we will not support the title at any level.”
Buffett stressed in the same letter to shareholders that he was not interested in buying back the stock at a slight discount. The price must be significantly understated before Berkshire takes action. “The intrinsic value calculations are far from precise,” explained the CEO. “Therefore, neither [Charlie or myself feel] urgently to buy an estimated value of $ 1 for a real 95 cents. “
With Buffett buying record amounts of Berkshire shares, he is likely unusually bullish on the company’s shares at the moment.
Of course, investors shouldn’t buy Berkshire shares just because Buffett is an aggressive buyer; they should take the time to do their own due diligence. Still, Buffett seems to be on to something. Based on the stock’s conservative assessment of 20 times free cash flow and the quality of the underlying assets of the company – from its $ 113 billion stake in Apple to its massive insurance business – Berkshire stock appears to be an excellent investment opportunity for investors wishing to hold stocks for the long term.