Berkshire Hathaway
Operating income was up sharply. The company has a record cash haul of $145 billion and used $6.6 billion to buy back shares. Typically, this is an indication that CEO Warren Buffett doesn't find much value in the market.
Inside the Numbers
In Q1, Berkshire reported $7.1 billion in operating income in Q1, a 20% increase from 2020's Q1. Total revenue came in at $64.6 billion last quarter, higher than the consensus of $63.7 billion.
Most of the strength was driven by the economy normalizing and strength in consumer spending, industrials, and transportation. Some of the industries that Buffett's subsidiaries represent include insurance, rails, trucks, utility, retail, and manufacturing saw signs of a recovery amid the economy reopening.
The company continued with its pace of buybacks - $6 billion. This follows $9 billion in the last quarter and $24.7 billion in 2020. Buffett has not made any deals like he has had in previous recessions. He has said that assets never got cheap enough, and the Fed acted so fast that he never got a chance to do anything.
He complimented the Fed by saying that the fact that he wasn't able to take advantage of any bargains meant that the Fed had done a good job. Buffett has said the current bull market's lofty valuation and duration are due in part to low rates. However, he likely believes the market is overvalued given his previous remarks about the market cap to GDP ratio and pockets of froth.
The other part of Berkshire - equity investments also did well due to the strong market and strength in value and cyclical stocks with a gain of $4.7 billion. Including operating income and investment income, the company generated $11.7 billion in net earnings. In contrast, a year ago it posted a net loss of $49.8 billion due to the coronavirus causing the economy and market to plummet.
Stock Price Outlook
Shares are up 18% due to the strength in value and cyclical stocks. Berkshire has considerable exposure to economic growth given its energy, railroad, and industrial holdings. It also has exposure to financials via its insurance arm.
Therefore, Berkshire's strength is a good indicator for growth prospects. Conversely, the continued uptrend in rates and strong growth environment over the next 24 months bodes well for Berkshire's stock which should continue outperforming after a decade of underperformance.
