The Oracle Wins Again as Berkshire's (BRK.A) Profits Soar 51%

Last week was an interesting one for the Oracle of Omaha, Warren Buffett. Mr. Buffett, who has long avoided tech stocks, posted his first tweet on Twitter, simply stating "Warren is in the house." Meanwhile, his company, Berkshire Hathaway (BRK.A), reported astounding first quarter earnings that comfortably topped analyst estimates. For its first quarter, Berkshire earned $2,977 per Class A share, or $4.89 billion, a 51% increase from the $1,966 per share, or $3.25 billion, it earned in the prior year quarter.

Operating profit soared 42% to $3.78 billion, or $2,302 per share, up from the $1,615 per share, or $2.67 billion, it earned last year. Revenue rose 15% to $43.87 billion. Daily Chart Berkshire attributed its robust quarterly results to strong growth from its insurance businesses, other businesses, and gains from investments and derivatives. For many investors, Berkshire is considered to be a mutual fund run by Buffett, instead of an individual stock. Berkshire Hathaway's portfolio consists of over 80 businesses, many of them broad macro plays that are directly benefiting from the recovering economy. Prime examples include Burlington Northern (BNI) railroad, McLane food distribution and Forest River recreational vehicles. Profit at one of Berkshire's insurance unit, Geico, nearly doubled from $845 million to $1.7 billion. By comparison, operating profit at Berkshire's non-insurance businesses only rose 12% to $2.25 billion. Two companies' gains especially stood out - MidAmerican Energy and Burlington Northern, which posted profit gains of 17% and 14%, respectively. Berkshire also owns other major blue chip stocks such as Coca-Cola (KO), International Business Machines (IBM) and Wells Fargo (WFC). Berkshire's book value rose 5.5% to $120,525 per Class A share, giving it a price-to-book ratio of 1.43 at the time of this writing. The company's cash and equivalents rose to $49.09 billion, up from $46.99 billion. $12.1 billion of that cash is being used to finance its joint acquisition of H.J. Heinz with Brazilian investment firm 3G Capital. Gains from investment and derivatives nearly doubled to $1.11 billion, with much of those gains attributed to Berkshire's warrants for General Electric (GE) and Goldman Sachs (GS), which Berkshire invested in at the nadir of the financial crisis. On this front, Buffett is a contradictory character - although he was the first major investor to call derivatives "financial weapons of mass destruction" prior to the 2009 crash, he has also been one of the biggest and most successful derivatives traders in history. Individual investors should be careful of directly following Berkshire's portfolio moves, however. Buffett no longer oversees the individual stock picks of the portfolio; rather, those investments are mostly managed by Berkshire executives Todd Combs and Ted Weschler. Buffett's occasional moves in recent years have been focused on acquiring companies whole, such as Burlington Northern, or taking advantage of extreme pessimism in big blue chips, such as General Electric, to force highly favorable deals. Berkshire Hathaway (Class A), at over $160,000 per share, is still the most expensive U.S.-listed stock on the market today. If you don't have that kind of cash lying around for a single investment, non-voting Class B shares cost a more reasonable $108 per share. Other News About BRK.A Insurance Gains Help Push Profit at Berkshire Hathaway Up Nearly 51 % Buffett's big bets on insurance pay off. Berkshire Hathaway's Earnings Jump 51% Berkshire's top and bottom lines soar. Other Stocks in the News 3 Stocks for the U.S. Housing Boom How should investors take advantage of the rising housing market? Are These Two Chinese Cyberspace Giants About to Crush the Industry? Will Sina and Weibo level the Chinese Internet industry? Copyright 2013 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on May 10, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

Copyrighted 2020. Content published with author's permission.

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