Want to participate in a short research study? Help shape the future of investing tools and receive a $20 prize!
When stocks are plummeting in price, it’s hard to start buying into all the uncertainty. But a disciplined long term investor knows there’s no better time to buy than right now. And I’m not talking about buying into speculative, high-risk stocks. I’m talking about the well-proven, robust track record Berkshire Hathaway Inc.. Why? Size. Financial health. Proven performance.
Berkshire Hathaway Inc., through its subsidiaries engages in insurance, freight rail transportation, and utility businesses. Started in 1889, and led by CEO Warren Buffett, the company employs 377.29k people and with the company’s market capitalisation at US$506b, we can put it in the large-cap category. Bear market volatility can have a short-term impact on large, well-established companies, but in the long-run, these businesses are likely to prevail. This is because fundamentally, nothing has changed. A fall in share price is hardly detrimental to its financial health and business operations. So, large-cap stocks are a safe bet to buy more of when the stock market is selling off.
With US$98b debt on its books, Berkshire Hathaway has to pay interest periodically. This means it needs to have enough cash on hand to meet these upcoming expenses. Berkshire Hathaway generates enough earnings to cover its interest payments, more specifically, its interest coverage ratio (EBIT/interest) is 8.99x, which is well-above the minimum requirement of 3x. Furthermore, its cash flows from operations copiously covers it debt by 36%, which is higher than the bare minimum requirement of 20%. Its cash and short-term investment is also sufficient to cover other upcoming liabilities, which means BRK.A is financially robust in the face of a volatile market.
BRK.A’s annual earnings growth rate has been positive over the last five years, with an average rate of 20%, beating the industry growth rate of -8.6%. It has also returned an ROE of 16% recently, above the industry return of 7.3%. This consistent market outperformance illustrates a robust track record of delivering strong returns over a number of years, increasing my conviction in Berkshire Hathaway as an investment over the long run.
Next Steps:Whether you’re convinced or not, the key takeaway here is that every stock gets hit in a bear market, but not every stock deserves the blow. When prices are dropping like flies, now is the time to do your research and buy at a discount. Berkshire Hathaway tick the boxes in terms of its scale, financial health and proven track record, but there are a few other things I have yet to consider. Below I’ve compiled a list of factors for you to continue your reading before you buy:
- Future Outlook: What are well-informed industry analysts predicting for BRK.A’s future growth? Take a look at our free research report of analyst consensus for BRK.A’s outlook.
- Valuation: What is BRK.A worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether BRK.A is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. On rare occasion, data errors may occur. Thank you for reading.