Berkshire Hathaway (BRK.B  ) reported second-quarter results. At initial glance, the report was very impressive as the company earned $26.3 billion in the quarter which was 87% higher than the 2019's second quarter of $14.3 billion. This also included a $10 billion write-off in the value of its aircraft parts business, Precision Castparts, due to coronavirus and subsequent fallout reducing demand.

Inside the Numbers

At a closer look, it's less impressive as the improvement in earnings came from increases in the company's stock holdings. Operating earnings were actually lower by 10% to $5.5 billion. This was above analysts' estimates of $5.1 billion.

Berkshire is a conglomerate, made up of 90 different businesses, so it gives a good reading on the overall economy. The two standouts were Geico car insurance and Burlington Northern rail. Due to fewer people driving, there were fewer claims. Profit came in at $2.1 billion compared to $393 million the previous year. Like a lot of car insurance companies, Geico is offering $2.5 billion in premium reductions to customers, but this will be spread out over many years.

The rail business contributed $1.1 billion in profit which was 15% less than the previous year but better than expected. Overall shipments declined by 18% as there was less industrial activity.

In terms of its portfolio, Berkshire is heavily invested in financials like Wells Fargo (WFC  ), Bank of America (BAC  ), and American Express (AXP  ). However, it had big gains in Apple (AAPL  ) and Amazon (AMZN  ) which have become bigger parts of Berkshire's portfolio due to their appreciation.

Berkshire also deployed $5.7 billion to buy back shares. At the end of the quarter, it had $147 billion in cash.

Stock Price Impact

Berkshire's stock has been a laggard for most of the past decade due to its heavy exposure to financials. It's also been underexposed to technology which has contributed the vast majority of the outperformance in stocks. Due to these factors, Berkshire has underperformed the market averages for the longest time in its history.

In the past, Berkshire underperforming the market was a sign that something was amiss and often corresponded to inflection points. Berkshire's underperformance would have been even worse had he not bought Apple and Amazon in 2015 and 2017, respectively. These were unconventional buys from Buffett given his aversion to technology, but they turned out to be savvy and well-timed.

Going forward, Berkshire looks like an interesting play for anyone who wants to bet on the economy returning to normal. Recent economic data has been supportive of this thesis like new orders picking up, while inventories are depleted. Additionally, data like consumer spending and home prices continue to improve which are consistent with increased economic activity.