Today, we have a Top Pick update from Steven Check, editor of The Blue Chip Investor, who is sticking with his selection.
“Berkshire Hathaway, Inc. (BRK-B) has risen 9% year to date and remains our favorite pick. The company is incredibly diversified, with sizable stakes in Coca-Cola, Wells Fargo, IBM and other publicly traded firms. Berkshire is now primarily an insurance-oriented holding company. It wholly owns insurers (e.g., General Re, GEICO), as well as operating companies (Burlington Northern Santa Fe, MidAmerican Energy, Lubrizol, Helzberg Diamond, etc.).
“Last September Berkshire announced its first-ever stock repurchase program: The program allows management to buy back stock when it trades at less than a 10% premium to book value. It appears that the buyback price has created a ‘floor’ for the stock’s price. At a recent price of $83, Berkshire trades at a 17% premium to book value. Thus the downside seems to be relatively low provided book value grows.
“The firm’s annual performance fluctuates substantially, depending on the results of its insurance subsidiaries and derivatives contracts. Its reinsurance operations in particular do poorly if there are major catastrophes (usually hurricanes), which cause large losses. Over time, however, all of Berkshire’s insurance operations have proven very profitable. Thus, the stock is often more volatile than the underlying businesses, which tend to grow each year.”
- Steven Check, The Blue Chip Investor, July 2, 2012