Warren Buffett's Berkshire Hathaway Still a Buy After Q3 Earnings

Warren Buffett's Berkshire Hathaway (BRK.B (opens in new tab), $287.47) showed once again why it's one of the best stocks to buy for a bear market.

Berkshire Hathaway, of which Warren Buffett serves as chairman and CEO, shrugged off rising fears of recession and the impact of Hurricane Ian to post a 20% jump in third-quarter operating earnings. 

Conglomerates have fallen almost entirely out of fashion, but it's a corporate structure that's working wonders for BRK.B shareholders during our current period of heightened uncertainty. Berkshire Hathaway owns outright or has investments in scores of companies across a wide range of industries. That highly diversified income stream came in mighty handy in Q3.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

Insurance underwriting, for example, booked an operating loss of $962 million in the quarter, hurt by the Atlantic hurricane season. Insurance-investment income, however, rose to $1.41 billion from $1.16 billion a year ago, helped by higher interest rates.

Meanwhile, profits at Berkshire Hathaway's utilities and energy businesses increased to $1.59 billion from $1.50 billion in last year's third quarter, while railroad earnings slipped to $1.44 billion from $1.54 billion a year ago.

Then there's everything else. Berkshire Hathaway's myriad businesses range from Kraft Heinz and Fruit of the Loom to Acme Brick Company and Nebraska Furniture Mart. Companies in which Warren Buffett's holding company has a controlling interest of at least 50% generated operating income of $3.25 billion, up from $2.71 billion a year ago. 

Berkshire Q3 Earnings Easily Top Estimates

Add it all up, and Berkshire Hathaway's operating income soared 20% to $7.76 billion in Q3. On a per-share basis, earnings came to $3.53, which easily topped Wall Street's estimate of $2.92, according to data from S&P Global Market Intelligence.

It's that sort of resilient operating performance that helps explain why BRK.B has been such a solid defensive stock in an otherwise dismal year for equities. Indeed, shares in Berkshire Hathaway were off just 3.9% for the year-to-date ended Nov. 4, beating the broader market by 17 percentage points. 

That said, the bear market has taken its toll on Berkshire's bottom line – at least as far as the accountants are concerned. Warren Buffett's company was forced to book a loss of $10.1 billion on its investment portfolio in Q3.

These are paper losses only, and reflect the highly concentrated nature of Berkshire Hathaway's equity portfolio. Apple (AAPL (opens in new tab)), for example, which is BRK.B's largest holding at more than 40% of the portfolio, has lost about a fifth of its value in 2022. Other top holdings such as American Express (AXP (opens in new tab)) and Bank of America (BAC (opens in new tab)) are also down in 2022. 

Write-downs on its stock investments caused Berkshire Hathaway to post a net loss of $2.69 billion in Q3, vs. net income of $10.34 billion in the year-ago period. 

No one values Warren Buffett's performance based on net income, however. 

In other notable Q3 developments, Warren Buffett spent another $1.05 billion on stock buybacks. Berkshire Hathaway has now spent a total of $5.25 billion on share repurchases over the first nine months of the year. 

And yet the company still has a massive pile of cash on its hands. Berkshire Hathaway ended Q3 with almost $109 billion in cash, cash equivalents and short-term investments. That's up from $105.41 billion as of June 30. 

BRK.B Stock Remains a Buy

Bottom line? Warren Buffett's Berkshire Hathaway remains a bear-market buy.

Of the five analysts covering BRK.B, one rates the stock at Strong Buy, two say Buy and two have it at Hold, according to S&P Global Market Intelligence. That works out to a consensus recommendation of Buy, with analysts citing valuation as a reason to be constructive on the name.

"We calculate BRK's shares are currently trading at around a 23% discount to its intrinsic value (29% as of 9/30)," writes UBS Global Research analyst Brian Meredith, who rates shares at Buy. 

Thanks in no small part to a bargain share price, the Street sees big returns in BRK.B's not-too-distant future. Analysts' average price target of $348.50 gives BRK.B implied upside of about 21% in the next 12 months or so.