The ability to buy growth stocks below market prices is a rare and valuable one. But it’s a reality for Berkshire Hathaway (NYSE:BRK.B).
The company has a mountain of cash and a reputation for getting deals done efficiently. And that gives it some big advantages.
Berkshire Hathaway
Berkshire Hathaway literally has more cash than it knows what to do with. So $10bn for some Alphabet shares is no big deal.
Google’s parent company has some big spending plans. So it’s looking to raise some cash in exchange for equity. The firm is looking for $80bn in total, but finding enough buyers isn’t exactly straightforward. That’s where Berkshire comes in.
Warren Buffett’s company has cash on hand ready to deploy. So it’s one of the first places Goldman Sachs asks when brokering this type of deal.
Being the buyer of choice however, puts Berkshire in a strong position. And that unique status comes with certain advantages.
What’s in it for Berkshire?
Berkshire’s cash reserves have been the subject of a lot of discussion. But Greg Abel’s been getting to work investing it. At its annual meeting in May, the new CEO described it as an opportunity. And it certainly looks like one at the moment.
In exchange for the cash, Berkshire got a discounted price. It bought Class A shares at $351.81 and Class C shares at $348.20. In both cases, that’s below where the stock was trading. That’s an advantage of being able to get deals done efficiently.
It might not be the only one. As well as a bargain price, Berkshire’s deal could come with other strategic benefits.
Energy opportunities
Realistically, $10bn doesn’t touch the sides of the Berkshire cash reserves. But I wonder whether more opportunities might be on the way.
One of the biggest challenges for data centres at the moment is power, and Buffett’s firm has a large energy subsidiary. I’ve thought this might be a source of potential opportunities for some time. So I wonder whether there might be potential here.
A direct investment is a bit different from an open market transaction. It makes Berkshire a strategic partner, not just a shareholder. Could this be mutually beneficial when it comes to powering Google’s data centres? Time will tell, but I’ll be watching with interest.
Risks and rewards
Even with Buffett having vacated the CEO role, Berkshire still has a unique ability to do deals. And that’s why I’m still buying it.
There are risks. The firm’s insurance division underwrites some huge natural disaster policies and that involves risk by definition. The best way to deal with this is by maintaining a strong balance sheet. And I can’t think of a company that does this better than Berkshire.
The firm’s size means it can take a while for opportunities to show up. But they can be well worth the wait when they do appear.
The Alphabet investment is the latest example. And investing is a lot easier when you have access to deals others don’t.
Join the party?
Berkshire’s opportunities are unique. But investors like me can participate by buying the shares on the stock market.
Despite the change in leadership, the firm’s long-term strengths are still firmly intact. And that’s why I’m continuing to buy the stock.
Should you invest £5,000 in Berkshire Hathaway right now?
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Stephen Wright owns shares in Berkshire Hathaway.
