Berkshire Hathaway’s Q3 report highlighted the conglomerate’s swelling cash reserve, now at a staggering $325 billion, setting a new record as Warren Buffett leaned toward a conservative approach amidst turbulent market conditions. Operating profits came in at $10.1 billion, down 6% from last year, as weak insurance underwriting impacted results. Earnings per share reached $12.18 for Class B shares and $18,272 for Class A shares. Although the conglomerate’s cash position surged, largely due to stock sales of approximately $36 billion, including a substantial reduction in Apple and Bank of America holdings, the company held back on buybacks, marking a stark shift from recent quarters. This cautious buildup of cash appears strategic, positioning Berkshire to capitalize on potential opportunities or weather economic uncertainties.
Berkshire's stock portfolio activity, particularly the scaling back of Apple and Bank of America shares, underscores Buffett’s careful rebalancing. Apple, once a pillar of Berkshire’s portfolio, saw a 25% reduction in Berkshire’s holdings, bringing its stake down to 300 million shares, the fourth consecutive quarter of reductions. Similarly, the company offloaded over $10 billion in Bank of America shares, continuing a trend of stock sales across various holdings. The net result was the eighth consecutive quarter of net stock sales, reflecting Buffett’s view that many stocks may be overvalued amid current market conditions. Despite this, Apple remains Berkshire’s largest equity holding, valued at $69.9 billion, underscoring the strength of its initial investment made when Apple was trading around $25 a share.
Berkshire’s diversified business units exhibited mixed performance this quarter. The insurance division saw a sharp 69% drop in underwriting profit, hindered by lingering losses from older policies, significant hurricane-related claims, and a one-time bankruptcy settlement tied to a talc supplier. However, Geico, its car insurance subsidiary, showed a 93% increase in underwriting profits, as accident claims decreased. Meanwhile, Berkshire’s railroad unit, BNSF, posted growth, benefiting from an uptick in consumer goods shipments. Its energy division also reported strong results, driven by reduced operating costs. Notably, the Pilot truck stop chain struggled, with revenue down 19% due to lower fuel prices and a decline in marketing volumes.
A significant element of the earnings report was Berkshire’s conservative stance on share repurchases. Despite accumulating record levels of cash, the conglomerate refrained from buying back its own shares this quarter, a surprising move given the modest buybacks in previous periods. This is the first time since 2018 that Berkshire opted not to repurchase stock, reflecting Buffett’s commitment to repurchase only when shares trade below their intrinsic value. The limited repurchase activity is notable as Berkshire’s stock has outperformed the broader market in 2024, reinforcing shareholder confidence in the company’s valuation and Buffett’s disciplined approach.
One question that looms large is how Buffett plans to deploy this growing cash pile. Berkshire hasn’t made a major acquisition since its 2016 purchase of Precision Castparts for $37 billion. The significant cash buildup, alongside a restrained stock market outlook, has led analysts to speculate on Buffett’s next big move. With some speculating that Buffett might be eyeing a potential large acquisition or preparing for a market correction, the massive reserve also provides Berkshire with a safety net against rising economic uncertainties. Buffett’s cash strategy could signal his belief that stocks are currently overvalued or that an economic downturn may be approaching.
Berkshire’s investment income, mainly from its insurance division, rose 48% to $3.66 billion, benefiting from higher interest rates. However, with the Federal Reserve likely to continue lowering rates in response to economic conditions, this boost could moderate in future quarters. If rates decline and opportunities arise, Buffett may finally find an appealing acquisition target or another profitable investment avenue. The firm’s cash flow, bolstered by the recent stock sales, positions it well to seize a strategic acquisition or expansion, particularly in sectors that align with Berkshire’s long-term vision.
Despite the conservative posture, Berkshire’s financial resilience and Buffett’s enduring reputation keep investors optimistic. Shares of Berkshire Hathaway Class B have gained 25% in 2024, and the company’s market cap hovers near $1 trillion, surpassing its $631 billion book value. This premium suggests strong investor confidence in Berkshire’s ability to generate long-term value, even as Buffett, now 94, continues to assess the markets with caution. His decision to reduce holdings in Apple, even while it remains a top holding, demonstrates a balancing act between recognizing profits and maintaining a robust core portfolio.
In summary, Berkshire’s Q3 report reveals a company that is strategically cautious yet financially poised. With no major acquisitions or stock buybacks, Buffett’s priority appears to be reinforcing Berkshire’s flexibility to adapt to future market conditions. As fiscal uncertainties persist, Buffett’s stock market moves and growing cash reserve could reflect a readiness to take advantage of more favorable conditions. Whether through a significant acquisition or further tactical investments, Berkshire Hathaway remains a powerful force in the market, guided by Buffett’s steady hand and cautious optimism for what lies ahead.