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Warren Buffett still believes Berkshire Hathaway stock is cheap enough to buy

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There’s no bubble in Berkshire Hathaway Inc. shares, as Warren Buffett and Charlie Munger still believe they are cheap enough to spend more than $6 billion buying them back during in the first quarter, and perhaps more than $1 billion since then.

The buybacks were executed even as Berkshire Hathaway shares continued to reach record highs. The Class A shares set 17 record closes during the quarter and the Class B shares set 18 records, including seven in March. In April, the Class A shares set 8 records and the Class B shares set 7 records.

Berkshire Hathaway disclosed Monday in its 10-Q filing with the Securities and Exchange Commission that it repurchased a total of $6.57 billion worth of its shares over the first three months of 2021. That included $1.69 billion worth of Class A shares at a weighted average price of $366,073.56, and $4.88 billion worth of Class B shares at $237.44, according to a MarketWatch calculation of the SEC data.

UBS analyst Brian Meredith said the first-quarter repurchases were more than his original forecast of $5.0 billion for the quarter. And Meredith said recent disclosures suggest an additional $1.4 billion of shares may have been repurchased since the end of March.

“We believe share repurchase will continue to be active as we estimates [Berkshire Hathaway’s] share price is currently 13% below its intrinsic value,” Meredith wrote in a note to clients.

In July 2018, Berkshire Hathaway had amended its stock repurchase program to give Chairman and Chief Executive Buffett and Vice Chairman Munger more flexibility in when they can buy back shares. The program states shares can be repurchased as long as Buffett and Munger believed prices were “below Berkshire’s intrinsic value, conservatively determined,” and as long as Berkshire had at least $20 billion worth of cash and cash equivalents.

In hindsight, it appears Buffett and Munger know what they are doing, as the Class A shares
BRK.A,
+2.11%

surged 2.1% on Monday to toward a record $421,179.00 in afternoon trading and the Class B shares
BRK.B,
+1.90%

climbed 1.9% toward a record $280.17.


FactSet, MarketWatch

Over the weekend, Berkshire Hathaway reported that it swung to a profit of $11.7 billion in the first quarter, from a loss of $49.7 billion in the same period a year ago, citing stock market gains and better insurance business results.

Read more: Warren Buffett warns investors not to gamble on stocks.

Also read: Charlie Munger ‘hates’ bitcoin’s rise: ‘Disgusting and contrary to interests of civilization.’

The following was the monthly breakdown of Berkshire’s repurchases during the first quarter:

Month

Shares (Class A)

Price

Amount

January

1,534

$348,488.65

$534.6 million

February

1,959

$362.748.29

$710.6 million

March

1,113

$396,162.91

$440.9 million

Total

4,606

$366,073.56

$1.69 billion

Month

Shares (Class B)

Price

Amount

January

10,661,127

$231.68

$2.47 billion

February

5,341,489

$237.06

$1.27 billion

March

4,545,124

$251.40

$1.14 billion

Total

20,547,740

$237.44

$4.88 billion

The volume-weighted average prices were $373,970.54 for the Class A shares and $242.91 for the Class B shares, according to a MarketWatch calculation of FactSet data.

Since July 2018, Berkshire Hathaway has repurchased a total of $37.65 billion worth of its stock, including $8.88 billion worth of Class A shares and $28.77 billion worth of Class B shares.

The company still had the resources to buy back a lot more shares, as the company had $56.83 billion in cash and cash equivalents as of March 31, 2021.

UBS’s Meredith said he increased his 2021 forecast for share repurchases to $11 billion from $9 billion. He said his forecast could prove “overly conservative,” given Buffett’s comments that Berkshire couldn’t buy other companies’ stock as cheaply as it can buy its own.

Over the past 12 months, Berkshire Hathaway’s Class A shares have rallied 53.7% and the Class B shares have climbed 53.4%. Meanwhile, the SPDR Financial Select Sector exchange-traded fund
XLF,
+0.85%

has run up 65.8% and the S&P 500 index
SPX,
+0.38%

has advanced 48.4%.

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