With market uncertainty abound in today’s macroeconomic and geopolitical climate, Warren Buffett and Berkshire Hathaway haven’t been immune to the volatility. Still, Berkshire is up over 10% for the year with Morningstar bulls and bears weighing in on what’s ahead.
One of the hallmarks of Buffett’s investment style is filtering for companies with strong fundamentals indicated in their intrinsic value or book value per share. Using the same metric on his own company, Berkshire’s intrinsic value has been increasing since 1965.
“Book value per share, which is a good proxy for measuring changes in Berkshire’s intrinsic value, increased at an estimated 18.3% CAGR during 1965-2023, compared with a 10.2% annualized return for the S&P 500 TR Index,” Morningstar noted, adding that the company’s stock performance has been steady, “ increasing at a 12.1% (11.8%) CAGR during 2019-23 (2014-23), compared with a 15.7% (12.0%) average annual return for the S&P 500 TR Index.”
The Bearish Side
As mentioned, Berkshire isn’t immune to the potential market fluctuations that could be ahead, affecting the broader market. The holdings company is still beating out the S&P 500 this year, but the long-term viability of its performance could come into question. In the short-term, tariffs and interest rates could also provide some market jolts.
Looking at Berkshire from a micro level, it has its own challenges as well. Can it find home run deals in the current challenging macroeconomic times?
“Given its size, Berkshire’s biggest hurdle continues to be its ability to consistently find deals that not only add value but are large enough to be meaningful,” Morningstar added.
Of course, a continuing question is the longevity of Berkshire’s CEO.
“Another big issue facing the firm is the longevity of CEO Warren Buffett (who turned 94 in August 2024), especially following the death of longtime managing partner Charlie Munger in November of 2023,” added Morningstar.
2 Trading Options
Regardless of that the stock price does in the interim, traders can be ready with leveraged and inverse single-stock ETFs. Direxion has the pair available for Berkshire Hathaway: the Daily BRKB Bull 2X Shares (BRKU) and the Direxion Daily BRKB Bear 1X Shares (BRKD).
Positive events like strong earnings results can allow bullish traders to use BRKU while a drawdown in prices can allow traders take the other side of the play with BRKD. Having both funds allow traders to remain flexible in the market no matter if Berkshire’s share price goes up or down.
For more news, information, and analysis, visit the Leveraged & Inverse Channel.
