ii view: Warren Buffett's Berkshire Hathaway spends billions on HP stake

Following a period of underperformance versus the S&P 500, shares for this conglomerate are outperforming in 2022. Buy, sell, or hold?

Purchase of share stake in Hewlett Packard

ii round-up:

Warren Buffett-run conglomerate Berkshire Hathaway (NYSE:BRK.B) disclosed that it has bought a major share stake in US computer and printer maker HP (NYSE:HPQ). 

Berkshire has become the largest shareholder in HP, buying nearly 121 million shares at a value of over $4 billion. The purchase follows other similar sizeable share acquisitions and raised speculation that Mr Buffett is beginning to find value in areas of the US stock market.

Berkshire shares are up by around 15% year-to-date having climbed by almost 29% during 2021. The S&P 500 is down by close to 6% year-to-date following a gain of almost 27% in 2021.  

Berkshire recently bought insurance company Alleghany (NYSE:Y) for $11.6 billion and has acquired a $7.5 billion share stake in Occidental Petroleum (NYSE:OXY). 

• Will April be the best month for stocks in 2022?
• How and where to invest £50k to £250k for income
• Want to buy and sell international shares? It’s easy to do. Here’s how

In 2021, it purchased a record $27.1 billion of its own shares following a previous annual record of $24.7 billion in 2020. 

Berkshire shares underperformed the S&P 500 index by almost 14% during 2020, adding to an 18% underperformance during 2019. That appeared to suggest thinning investor patience with Berkshire’s inability to find a home to invest its cash mountain.  

The Omaha, Nebraska headquartered company’s cash mountain stood at $144 billion at the end of 2021, up from $138 billion at the end of 2020. It previously announced that Greg Abel, current vice chairman of Berkshire's non-insurance businesses, would become chief executive should Mr Buffett step down. Warren Buffett turned 91 in August. 

ii view:

Led by legendary investor and businessman Warren Buffett, Berkshire Hathaway is tracked and invested in by large and small investors alike. The company, which Mr Buffett has run since 1965, engages in a range of business activities from insurance and reinsurance to utilities, freight rail transportation and manufacturing. 

For investors, elevated inflation and rising costs for businesses generally cannot be ignored. The eventual departure of Mr Buffett from the business may well dampen investor enthusiasm, while the outlook broadly is now clouded by economic uncertainty and heightened geopolitical concerns.  

More favourably, value buying opportunities are being found, and Berkshire's considerable cash mountain offers room for further bargain hunting. Investment opportunities, if not full takeovers in recent years, have included Apple (NASDAQ:AAPL), Coca-Cola (NYSE:KO), Bank of America (NYSE:BAC) and Snowflake (NYSE:SNOW), while its ongoing share buyback programme continues to offer support. In all, and with distorting central bank action still arguably very much in play on global asset prices, the judgement and experience offered by Mr Buffett’s Berkshire company remains highly reassuring.   

Positives: 

• Diverse portfolio of industries and businesses
• Company chairman Warren Buffett is regarded by many as a legendary investor and businessman 

Negatives:

• Subject to macro-economic and geopolitical uncertainties
• Management succession risk - Mr Buffett is in his 90’s

The average rating of stock market analysts:

Strong hold