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Bull of the Day: Berkshire Hathaway (BRK.B)

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Berkshire Hathaway (BRK.B - Free Report) is expected to be a big winner in the economic reopening. This Zacks Rank #1 (Strong Buy) is expected to grow its earnings by the double digits in 2021.

Berkshire Hathaway, helmed by Warren Buffett, is a conglomerate with diverse business activities in insurance and reinsurance, utilities and energy, freight rail transportation, manufacturing, retailing and services.

Its businesses include GEICO, BNSF, Fruit of the Loom, Duracell, NetJets, Dairy Queen, CORT and Business Wire, among others.

Berkshire Beat in the Second Quarter

On Aug 7, Berkshire reported its second quarter 2021 results and beat the Zacks Consensus by $0.42. Earnings were $2.94 versus the Zacks Consensus of $2.52.

It was the second beat in a row and the third out of the last 4 quarters.

Berkshire's businesses began to bounce back from the pandemic shutdown of 2020.

Thanks to a strong stock market, the company's equity investments jumped to $307.9 billion from $281.1 billion as of Dec 31, 2020.

Approximately 69% of the aggregate fair value in the equity investments, however, is concentrated in just 4 companies: Apple (APPL) at $124.3 billion, Bank of America (BAC - Free Report) at $42.6 billion, American Express (AXP - Free Report) at $25.1 billion and The Coca-Cola Company (KO - Free Report) at $21.6 billion.

The company had $42.3 billion in cash and cash equivalents but a total of $144.1 billion in liquidity, including short-term investments in US treasury bills.

Berkshire doesn't pay a dividend, but it has begun buying back shares. It bought $6 billion in the second quarter and has bought $12.6 billion in the first half of 2021.

Analysts Raise 2021 and 2022 Earnings Estimates

Berkshire Hathaway's B Shares aren't heavily covered on the Street. only has 2 analyst estimates for 2021 and 2022.

But the estimates have been revised higher in the last 60 days.

The 2021 Zacks Consensus Estimate has jumped to $11.79 from $11.23 in the last 2 months. That's earnings growth of 28.6% because the company only made $9.17 last year.

They are bullish about 2022 as well.

The 2022 Zacks Consensus Estimate has risen to $12.47 from $11.86, as 2 estimates were revised higher in the last 60 days.

That's another 5.7% earnings growth.

Shares Beating the S&P 500 in 2021

Even though Warren Buffett is considered one of the greatest investors who has ever lived, Berkshire Hathaway's stock has lagged the last few years.

Over the last 2 years, shares are up just 33.7% versus the S&P 500 that has gained 47%.

However, in 2021, shares have gained 19.6% with the S&P 500 jumping only 15.8%.

Berkshire owns a combination of businesses that should do well on the reopen and in an economy with a quarterly GDP over 4%.

But ironically, even with Buffett being a famed value investor, the shares aren't cheap.

They're trading with a forward P/E of 23.5.

But for investors looking to add a conglomerate to their portfolio, then Berkshire Hathaway should be on the short list.

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