The impending retirement of Warren Buffett is a key risk for the company. Berkshire Stock has a buy rating from analysts.
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Berkshire Hathaway Inc (NYSE:BRK-B) stock got a strong boost from the election of Donald Trump as the President of The United States. Berkshire stock has gained by more than 13% since the election, compared to a 9.7% gain in S&P 500 (INDX:SPAL). While the Oracle of Omaha had backed Hillary Clinton before the elections, he is betting big on the Trump presidency. Warren Buffett recently revealed that Berkshire has invested more than $12 billion in the stock market since the elections.
The company recently filed its F13 with the SEC providing a look into its vast diversified portfolio. While the Warren Buffett-led company doubled down on its stake in Apple (NASDAQ:AAPL) and airline companies, it cut its exposure to Walmart, Verizon and Kinder Morgan. The Omaha, Nebraska-based company is expected to report its Q4 earnings on 24th of February. Given the improving macroeconomic scenario and rising interest rates, the Warren Buffett-led company is likely to continue doing well.
Improving economy will be a catalyst for Berkshire Stock.
Berkshire Hathaway will benefit from the strengthening economy and rising consumer expenditure. In spite of its recent push into the transportation and energy sectors, the banking and insurance sectors continue to contribute a significant portion of Berkshire’s earnings. Insurers like GEICO and General Re contributed 20% of Berkshire’s earnings in the first 9 months, higher than any other segment. In the last few years, earnings of insurance companies had taken a hit due to very low interest rates.
Insurance companies earn a significant chunk of their income by investing their float in liquid securities. The Fed had kept interest rates near zero for a long time since the financial crisis, which had in turn impacted investment income of insurance companies. But with the Fed expected to raise interest rates 3 times this year, the earnings of insurance companies are likely to get a boost. Berkshire also has stakes in several banks including Wells Fargo (NYSE:WFC) and Goldman Sachs (GS), which will be another beneficiary of rising interest rates. In fact, Wells Fargo is one of Berkshire’s largest holdings. The administration’s proposal to modify the Dodd-Frank act and Consumer Protection Bureau will be another tailwind for banks.
