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Growth stocks have most definitely had their time to shine over the past decade of this market expansion, but there has been a place for good, old-fashioned value stocks as well. Value picks are made for the long haul. With lower valuations, value stocks can help limit the downside potential.
Many value stocks outperform the broader market over the long term. To that end, finding good value stocks with long term growth potential can be very lucrative to the patient investor. Today we look at Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B)
Berkshire Hathaway from 1997 – 2020, source Investing.com
Berkshire Hathaway: The tried and true
Buying Berkshire Hathaway is essentially investing in the best value fund of all time. The investment conglomerate is focused on value stocks and offers exposure to a large array of enterprises.
Since 1996, Berkshire Hathaway shares have crushed the S&P 500; growing 786% relative to the S&P’s 279%. Some might criticize the company’s ill-timed 2015 investment in Kraft Heinz, and CEO Warren Buffett’s bow out from newspapers just this year, but that’s not where the investment magic resides for Berkshire Hathaway. The insurance businesses it operates are what make the company a real value for investors. The cash flow from premiums gives the company a lot of ammo to play with on other investments.
Estimates for full-year 2019 earnings are calling for $10.41 per share (in terms of BRK.B shares). If that’s accurate, shares are trading at 21.7 times full-year earnings. That’s a pretty cheap premium for a company that plays the game better than anyone.
Factor in the fact that the company held $128 billion in cash reserves at the end of the third quarter, and this is a super appealing play. That kind of capital gives the investment conglomerate a lot of ammo to take advantage of the next economic downturn. While we haven’t seen a recession in a long time, eventually it will happen. When it does, Berkshire Hathaway has extreme amounts of capital to put to use investing in future winners. Warren Buffett used large capital reserves in the 2008 downturn to gain large positions in names like Goldman Sachs, Dow Chemical and Bank of America.
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