Berkshire Hathaway (NYSE:BRK-B)(NYSE:BRK-A) chairman and CEO Warren Buffett knows a thing or two about investing, to put it mildly. His investment prowess has helped Berkshire stock grow at an average rate of 20% annually between 1965 and 2019, or a total of 2,744,062%. This obliterated the S&P 500 index’s return over the same time frame. The popular index rose 19,784% (including reinvested dividends) over this period.
With such a stellar track record, it’s worth checking what the Oracle of Omaha’s conglomerate is buying the most. Fortunately, Buffett’s top stock pick for 2020 is easy to spot, as there’s one company’s shares he’s spending far more money on than anything else: Berkshire Hathaway itself. The company is repurchasing its own shares in droves, signaling to investors that Buffett thinks Berkshire stock is undervalued.
Buffett just bought $9 billion more of this stock
In a filing with the Securities and Exchange Commission released earlier this month, Berkshire Hathaway revealed it bought an incredible $9 billion of its own stock during Q3 — more than the company has ever spent buying back the stock in any single year.
Buffett’s move to spend billions buying back Berkshire shares extends the famed investor’s growing bullishness on the stock. The company has been steadily increasing its buybacks recently. In the first and second quarter of 2020, Berkshire repurchases amounted to $1.7 billion and $5.1 billion, respectively.
For context on just how aggressive Buffett’s recent repurchases of Berkshire stock are, note that the company spent only $4.9 billion repurchasing shares in 2019. Even more, Berkshire is now spending more money buying back its own stock than any other publicly traded company, barring Apple (NASDAQ:AAPL). Of course, the tech company has a market capitalization four times the size of Berkshire and is raking in $73 billion of free cash annually, so it’s pretty easy for the iPhone maker to spend more than Berkshire.
Should you buy, too?
When Buffett is buying back Berkshire stock aggressively, it means he thinks shares are undervalued relative to their long-term prospects. Unlike some companies that implement a share repurchase program without considering what the stock price is trading at the time, Buffett and his investment partner Charlie Munger only buy back the stock when they think they’re getting a good deal.
“If the price-to-value discount (as we estimate it) widens, we will likely become more aggressive in purchasing shares,” Buffett said in Berkshire’s most recent annual letter to shareholders. “We will not, however, prop the stock at any level.”
Buffett emphasized in the same shareholder letter that he is not interested in buying back the stock at a slight discount. The price needs to be meaningfully undervalued before Berkshire acts. “Calculations of intrinsic value are far from precise,” the CEO explained. “Consequently, neither [Charlie or myself feel] any urgency to buy an estimated $1 of value for a very real 95 cents.”
With Buffett buying record amounts of Berkshire stock, he’s likely exceptionally bullish on the company’s shares right now.
Of course, investors shouldn’t buy Berkshire stock only because Buffett is an aggressive buyer; they should take the time to do their own due diligence. Still, Buffett seems to be onto something. Based on the stock’s conservative valuation of 20 times free cash flow and the quality of the company’s underlying assets — from its $113 billion stake in Apple to its massive insurance business — Berkshire stock does look like a great investment opportunity for investors willing hold shares for the long haul.