Warren Buffett is a name synonymous with success. As the longtime head of Berkshire Hathaway, Buffett has delivered an impressive 20% annualized return for shareholders since 1965. That is a massive accomplishment, doubling the S&P 500’s benchmark return, as he has delivered such excellence for nearly sixty years in business. These exceptional results stem from Buffett and his late partner Charlie Munger’s business knowledge and skill, combined with Berkshire’s ability to strategically invest funds generated by its insurance business.
In light of these remarkable accomplishments, it’s safe to say that if Buffett advises you to invest in a certain stock, you’d be well off to do so.
Berkshire Hathaway
Buffett’s favorite business is (fitting for a man who specializes in maximizing profit) his own. Berkshire Hathaway has Class B shares, trading around $475 per share. The conglomerate holding company owns a majority stake in over 60 businesses, like Dairy Queen and GEICO. Additionally, the company has a portfolio of over 40 stocks totaling $300 billion in value, with its largest stakes in Apple, American Express, and Bank of America.
Berkshire recently reported its third-quarter 2024 earnings, with slight revenue and operating earnings declines compared to Q3 2023. Specifically, Berkshire delivered $93 billion in revenue and $10.1 billion in operating earnings, a drop of 0.2% and 6.2%, respectively.
It is important to note that Berkshire’s insurance business can be cyclical, which played out to the company’s detriment in its recent quarter. Notably, insurance losses reached $15.2 billion, up 10.5% year over year, and underwriting expenses cost the company $4.9 billion, an increase of 41.1% year over year.
The biggest bull case for Berkshire is undoubtedly its $325 billion pile of cash and cash equivalents, making it arguably the company most prepared for a market downturn and a perfect hedge play for individual investors. When that will be is anybody’s guess, but as Buffett awaits to deploy Berkshire’s cash hoard, the company will earn approximately $14 billion annually at the current 4.5% Treasury bill rate.
Chubb Limited
Berkshire also recently purchased a 6.7% stake in Chubb Limited. This Switzerland-based company, known for property and casualty insurance, trades for $285 per share and has surged 25% in 2024 following record revenue and operating income.
During Q3 2024, Chubb generated $14.9 billion in revenue and $2.3 billion in operating income, up 14.3 billion, representing a year-over-year increase of 7.2% and 14.3%, respectively. Notably, Chubb did have an increase of pre-tax catastrophe losses of $765 million during the quarter, an increase of $95 million, including $250 million attributable to Hurricane Helene.
Chubb trades at a hefty price-to-book value of 1.75, near the high end of its five-year median. Still, given its record revenue and earnings, robust balance sheet, and shareholder-friendly history, the stock appears deserving of its high valuation.
In a recent shareholder letter, Buffett discussed the capital allocation strategy’s stockholder benefits, saying, “The math isn’t complicated: When the share count goes down, your interest in our many businesses goes up.”
DaVita
Berkshire owns a 44% stake in DaVita, making it unsurprising that Buffett might recommend investing in it. Nevertheless, DaVita is a healthcare company that specializes in outpatient kidney dialysis services. Trading at around $164 per share, it has delivered an outstanding 54% return in 2024.
As of September 30, DaVita provided dialysis services to approximately 265,400 patients across 3,113 outpatient centers, 85% in the United States. In its latest reported quarter, the company achieved record financial results, generating $3.3 billion in revenue and $535 million in operating income.
The company does have some balance sheet concerns, considering it has $8.5 billion in net debt and a market capitalization of $13.5 billion. That debt is also gradually costing more to service each quarter as interest rates remain elevated, carrying an expense of $134.6 million for Q3 2024, an increase of $37 million from Q2 2024.
