(Bloomberg) — Warren Buffett’s Berkshire Hathaway Inc. has acquired $158 billion in domestic infrastructure assets, a billionaire investor said, underscoring the group’s stature as an industrial powerhouse that it only expects to grow. .
Buffett said in his annual letter released on Saturday that the vast collection of assets is the largest by any American company. The pool highlights the changes that Berkshire has taken from a company rooted in insurance, retail and stocks to an operation with a sizable railroad and vast energy empire.
“Many people view Berkshire as a large and somewhat strange collection of financial assets,” Buffett said. “In fact, Berkshire owns and operates more US-based infrastructure assets than any other US corporation owned and operated — classified on our balance sheet as property, plant and equipment.”
The $700 billion conglomerate has seen expansion in its railroads, BNSF and energy operations in recent years. Buffett called BNSF “the number one artery of American commerce” and praised the energy operation for earning a record $4 billion last year. After the increase in its home infrastructure assets in 2021, Buffett expects that figure to continue to rise, something Berkshire has always been building on, he said.
“We tend to think of Berkshire as a toll booth on the American economy,” Jim Shanahan, an analyst at Edwards Jones, said in a phone interview. “Here’s a broad showing in the US economy.”
In recent years, Berkshire has been grappling with the problem of high-end cash flows without enough lucrative opportunities to spend, leaving the firm with nearly $147 billion on hand at year-end. The hoarder is only slightly shy of the record set three months ago.
In Buffett’s own words, “financially impregnable.” The businesses are considered among Berkshire’s “Big Four,” along with its insurance operations and its stake in Apple Inc. According to shareholder James Armstrong, they are a good fit for Berkshire at this stage.
Armstrong said, “If you’re in a situation where your company, Berkshire Hathaway, is running out of cash, an electric power business is a good fit because you can deploy your cash into a business that’s very large.” Ho.” Berkshire oversees approximately $1 billion, including investments in shares. “It’s a regulated business, so you’re never going to make high returns, but you’re likely to get great returns because regulators want the electric power grid to be well maintained.”
Here are other key excerpts from Berkshire’s letter:
Todd and Ted
Two of Buffett’s investment reps, Todd Combs and Ted Weschler, often stay behind the scenes, helping to deploy Berkshire’s billions across different stock picks. Buffett revealed in the letter that the pair now oversees investments totaling $34 billion, some of which are among Berkshire’s top 15 biggest stock bets.
The impact of both can be seen in some of Berkshire’s recent stakes, including Activision Blizzard Inc. before Microsoft Corp. Including the purchase of stock. Agreed to buy the game maker. Even so, the $34 billion that the pair manages would make up just under 10% of the company’s total $350 billion stock portfolio. According to Shanahan of Edward Jones, both the managers should be given more capital.
“There is evidence of their impact in the portfolio more broadly, but there has been a nice change in the composition of the portfolio here,” Shanahan said. “Especially given that the operating companies are more old economy, they have brought a new economy angle to the portfolio, which I think creates a more balanced franchise.”
record buyback
Buffett acknowledged that investor and his longtime business partner Charlie Munger were “a little excited” on the stock-buying front these days. This led Buffett to lean even more into stock repurchases as an important way to deploy capital. Berkshire spent $27.1 billion on buybacks last year, its highest ever, and continued to snap $1.2 billion worth of shares from year-end through February. 23.
“They’re still at what we think is such a comfortable discounting valuation from intrinsic value per share that we still believe every penny spent is favorable to the remaining shareholders,” said Tom Russo, who owns Berkshire Shares. Oversees $9 billion, including investments. Gardner Russo & Quinn LLC said in a phone interview.
But Rousseau acknowledged that Berkshire can’t take that pledge to the extreme “because if you exhaust yourself with all the resources and a big elephant comes on tip-toe, you won’t be able to take advantage of that.” What you really want to do. Which generates more earning streams.”
Buffett mentioned his favorite ways to raise capital—buying companies outright, investing in publicly traded stocks, and even repurchasing his own shares of Berkshire. But his omission of another option — dividends — and Berkshire’s history of not issuing one reinforces shareholders he is still against Berkshire’s idea, according to Shanahan of Edward Jones.
“For anyone thinking they might change their mind about dividends, there was no fourth option,” Shanahan said. “Actually, by omission, was a fairly strong statement.”
What Bloomberg Intelligence Says:
“Warren Buffett’s annual letter included a more cautious tone on share repurchases and while buybacks should continue, the pace may be slowing. Cash is $147 billion but Berkshire is likely to stay away from larger investments. Berkshire’s diversified income streams.” Could combat supply chain issues as 4Q operating income grew 45% to $7.3 billion.”
–Matthew Palazzola, Kylie Tobin, BI Analyst
succession
Buffett passed a portion of Berkshire’s report to his potential successor, Greg Abel, in a rare move. Abel detailed how Berkshire is approaching environmental issues such as greenhouse gas emissions in some of its biggest businesses, including railroads and energy operations.
According to Cathy Seifert of CFRA Research, Berkshire has been under pressure in recent years to address environmental issues given the scale of those businesses, and the topic has become increasingly important to investors.
“Berkshire is a laggard here and I think it’s a much-needed catchup,” Seifert said. “I’m glad to see that this is Greg and this is someone who is going to step into a role where it’s going to be needed. It’s not going to be a well-lived one anymore.”
little to buy
Berkshire came up short last year with no big deal to supercharge its growth. Buffett was blunt in saying that there was “very little action” at Berkshire in 2021 that was considered new or interesting. The firm was also a net seller of common shares in the fourth quarter, having sold more stock than the company bought for the fifth consecutive quarter.
Still, Berkshire’s operating business continued to grow, with fourth-quarter operating profit climbing to its second highest level in data as of 2010. And Buffett has plenty of money to work with if a deal comes through.
“What the Berkshire cash machine has become,” Armstrong said.
© 2022 Bloomberg LP
