Berkshire takes advantage of market slump to buy back shares

(Bloomberg) – Warren Buffett’s Berkshire Hathaway Inc. follows an old adage: buy the dip.

The conglomerate was a net buyer of stocks during the quarter, reporting $45.2 billion in purchases after subtracting sales in second-quarter results released Saturday. It bought a total of $41.4 billion worth of shares in the first three months of 2022 after being a net seller in the second quarter of last year.

Berkshire stepped in as the S&P 500 lost 16% in the quarter. The Omaha, Nebraska-based company also reported operating profit of $9.2 billion, with the insurance and railroad businesses posting gains.

Cathy Seifert, an analyst at CFRA Research, said one company with potential warning signs is Geico, the company’s personal auto insurance unit. It recorded an underwriting loss of $487 million, even as the conglomerate’s other lines of insurance grew alongside the division’s investment income.

But Seifert said the report as a whole reflected “decent revenue growth, continued decent demand for various goods and services, offset by higher input costs and equity market volatility.”

Berkshire said the losses at Geico were the result of greater claims severity due to higher used car prices and auto parts shortages. The company said in-force policies have shrunk even as it raises premiums, a potential sign the company is losing market share as customers seek better rates elsewhere.

“They’re in a bit of a tough spot right now,” Seifert said, adding that the same trends are playing out at other auto insurers, but seem to be hitting Geico particularly hard. “It’s probably a good idea to watch for further deterioration.”

The same market weakness that increases Buffett’s purchasing power is weighing on his company’s bottom line, at least on paper. The company reported a net loss of $43.8 billion due to a loss of $53 billion in the company’s investment portfolio. Berkshire downplays these results based on accounting rules, saying they provide a misleading picture of the company’s actual performance.

What Bloomberg Intelligence says:

“Berkshire was a net buyer of equities in 2Q of over $45 billion, or $86.6 billion in 2022, compared to a net seller of $16 billion in 2020-21. We believe this price may continue and does not necessarily signal that Buffett is bearish on his own stocks; buyouts have always been a lower priority use of company capital. Redemptions of $1 billion in 2Q were down from the 2021 pace by about $7 billion per quarter.

— Matthew Palazola, Senior BI Insurance Industry Analyst

Buffett’s appetite for his own stocks waned even as he piled into stocks elsewhere. Share buybacks hit $1 billion in the second quarter, trailing the $3.2 billion in buybacks at the start of the year.

The company also announced that Berkshire Hathaway Energy acquired $870 million in common stock from Vice Chairman Greg Abel in June. The transaction had not been previously disclosed.

Despite the spending spree, Berkshire only made a small dent in its cash pile. The company reported $105.4 billion at the end of June, just over $106 billion at the end of the first quarter.

The aggressive pace at which Berkshire acquired shares of Occidental Petroleum Corp. raised questions about whether Berkshire was considering making an acquisition of the energy giant. But the company did not provide information on its strategy in this quarter’s regulatory filing.

(Updates with analysts’ comments starting in the fourth paragraph.)

©2022 Bloomberg LP

Leave a Comment

Your email address will not be published.