As of this writing, I have over 40 different investments in my brokerage account, including individual stocks and ETFs. While some of the ETFs could certainly work as a stand-alone investment strategy, such as the Vanguard S&P 500 ETF, it can be tougher to find an individual stock I’d like to own all by itself.
In fact, if I could only buy and hold one stock, my answer would be an easy one. Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) is not only a diversified collection of investments all in one stock, but it’s arguably in a better position than any other company to thrive, even in a bad economy.
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When you buy a share of Berkshire Hathaway, you aren’t just buying one business. Berkshire owns a collection of more than 60 subsidiary businesses, including household names such as GEICO, Duracell, Dairy Queen, and Fruit of the Loom, as well as a large energy business, a major railroad, and much more.
In addition, Berkshire owns a stock portfolio worth about $300 billion. It owns large positions in Apple, Coca-Cola, and American Express, as well as dozens of other stocks, many of which were selected by legendary investor Warren Buffett. So you truly aren’t just buying one stock when you invest in Berkshire.
One key takeaway is that Berkshire’s businesses (especially the larger ones) are rather recession resistant. As one example, customers will keep paying their auto insurance bills to GEICO, even in tough times, and their electric and gas services through Berkshire Hathaway Energy. And BNSF Railroad will continue to move goods around the United States.
Even more significant is Berkshire’s cash stockpile. As of the latest information (the third quarter of 2024), Berkshire had about $325 billion in cash and short-term investments on its balance sheet. It’s likely that this number will have increased when we get Berkshire’s year-end results in a few weeks.
This is an unprecedented level of financial flexibility for one company to have. To put this into perspective, there are fewer than two dozen companies with market caps that are greater than the amount of cash Berkshire has. Theoretically, Berkshire could buy a business the size of Chevron or Cisco, just to name a couple.
For the time being, Warren Buffett and his team are in no rush to deploy this capital. It’s sitting in Treasury securities earning over $10 billion in interest income annually. But if the economy took a turn for the worse or the stock market crashed, Berkshire has a massive amount of firepower to take advantage.
Berkshire Hathaway has a $995 billion market cap, as of this writing, but there’s more to the story. After backing out Berkshire’s $325 billion in cash and the current value of its stock portfolio (about $296 billion), the market is only valuing Berkshire’s operating businesses at $374 billion.
Over the past four quarters, Berkshire’s operating earnings, excluding investment income, have been $29.1 billion. So Berkshire’s businesses are being valued at just 12.9 times earnings — a remarkably cheap valuation for a collection of largely recession-resistant businesses that are performing quite well.
The bottom line is that Berkshire is truly an investment in more than 100 subsidiary businesses and common stocks. It has incredible financial flexibility and is trading at an attractive valuation.
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American Express is an advertising partner of Motley Fool Money. Matt Frankel has positions in American Express, Berkshire Hathaway, and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, Chevron, Cisco Systems, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
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