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Warren Buffett is arguably the most legendary investor of all time. But the Oracle of Omaha missed this year’s stock market rally. So far, at least.
Shares of Buffett’s conglomerate Berkshire Hathaway (BRKB), a company that owns businesses ranging from Geico and the Burlington Northern Santa Fe Railroad to consumer brands like Dairy Queen, Duracell and Fruit of the Loom, fell slightly this year – lagging the market as the S&P 500 is up 6%. (The Nasdaq did even better, jumping 12%).
Berkshire Hathaway also has a giant stock portfolio that Buffett helps manage. Apple (AAPL) is now by far the largest holding company of Berkshire, which also has significant stakes in Bank of America (BAC), Chevron (CVX), American Express (AXP) and Coca-Cola (KO).
So, dare we say, is the Berkshire wallet a little too boring? After all, if you want exposure to the big stocks it holds, you can simply buy an S&P 500 index fund.
Buffett, in fact, has promoted this idea to investors on several occasions, arguing that most individual stock pickers won’t be able to beat the market. Buffett, 92, who has a net worth of more than $100 billion according to Forbes, even said he wanted the trustee in charge of his will to put 90% of his wife’s inheritance in index funds.
Yet investors pay extremely close attention to Buffett whenever he speaks. Traders will therefore be digging into every word of its annual letter to shareholders, which will be released on the morning of Saturday, February 25, along with Berkshire’s latest earnings report.
Don’t expect any big surprises. Buffett will likely continue to tout a patient, long-term approach to investing and an optimistic outlook for the US economy. And to its credit, it usually pays dividends: Berkshire stock rose 3% last year in a bear market.
But market watchers want to know what Buffett is saying about the current inflationary plague that has had a big impact on consumers and investors. After all, it has had a few episodes of high inflation.
“I’d love to hear Buffett talk about what’s going on with interest rates and inflation as much as they are,” said Steve Check, president of Check Capital Management, an investment firm that owns stocks. of Berkshire. “He talked a lot about his worry in the 1970s and 1980s.”
Buffett has made many comments about inflation over the past few decades. And he was particularly nervous in the late 1970s and early 1980s, when soaring oil prices created an inflationary shock that severely hurt the economy.
“High rates of inflation create a tax on capital that makes much corporate investment unwise,” Buffett said in his 1980 shareholder letter to Berkshire investors. Buffett also described inflation as a gigantic parasitic “tapeworm” for businesses in 1981.
Buffett may also have to explain how heavy and focused his portfolio has become. Berkshire’s five largest holdings account for about 75% of the company’s equity investments.
“The portfolio is significantly overweight [in] technology, energy, consumer staples and financials versus the S&P 500,” Bill Stone, chief investment officer at The Glenview Trust Company, another Berkshire shareholder, said in a report. Stone noted that Berkshire also has significant stakes in Kraft Heinz (KHC) and oil company Occidental Petroleum (OXY).
Investors also want to know more about what Buffett plans to do with Berkshire’s huge pile of cash. The company has over $100 billion on its balance sheet. Are other acquisitions to come?
Buffett has spoken for the past few years about how he aspires to make an “elephant-sized” deal with Berkshire money. His most recent big deal was last year’s purchase of insurer Alleghany for $11.6 billion.
Still, Berkshire’s recent lackluster stock performance shouldn’t deter loyal Buffett fans, many of whom are expected to make the annual pilgrimage to Omaha on May 6 for the company’s shareholder meeting.
Berkshire Vice Chairman Charlie Munger will likely be on stage with Buffett. So will Greg Abel, chairman and CEO of Berkshire Hathaway Energy, whom Buffett has chosen to succeed him as CEO of Berkshire Hathaway.
Buffett’s faith in the American economy is well founded. US consumers have proven remarkably resilient despite runaway inflation. Surprisingly strong retail sales gains in January are further evidence of this.
Investors will get several more consumer spending clues this week when several major retailers report earnings.
Dow Walmart (WMT) and Home Depot (HD) components are the highlights. Walmart (WMT), which has a huge grocery business, should shed some light on how shoppers are coping with soaring grocery prices.
However, Walmart could still benefit from its reputation as a place of bargains. It might even attract more affluent buyers looking to save some cash.
“With inflation remaining high in the United States, we expect Walmart to continue to reap the benefits of lower trade…especially from high-income customers,” said analyst Arun Sundaram. at CFRA Research, in a report.
And investors will be looking for clues about the health of the housing market when Home Depot releases its report. Placer.ai, a research firm that measures foot traffic at top retailers, said in a recent report that consumers are returning to Home Depot and competing with Lowe’s at near pre-pandemic levels — even despite the housing downturn.
A reason? Current homeowners may decide to spend more on renovations if they now plan to stay longer in their current home instead of looking to sell.
“Although the home buying market is cooling…foot traffic remains near pre-pandemic levels due to a shift towards projects to spruce up a current living space,” Ezra said. Carmel from Placer.ai in a report. “It seems that projects that improve the prospect of staying put also have the ability to generate visits.”
Investors will be keeping a close eye on several other retailers expected to report earnings this week, including TJX (TJX) – the owner of TJ Maxx, Marshalls and HomeGoods – as well as online retailers eBay (EBAY), Etsy (ETSY), Overstock ( OSTK), Wayfair (W) and Chinese Alibaba (BABA).
The U.S. government is also expected to release personal spending figures for January on Friday, another data point that will provide insight into consumers’ financial health.
Monday: US stock and bond markets closed for Presidents Day
Tuesday: sales of existing homes in the United States; Eurozone and UK PMI; revenues from Walmart, Home Depot, Medtronic (MDT), Fluor (FLR), Molson Coors (TAP), Caesars Entertainment (CZR), Diamondback Energy (FANG), Chesapeake Energy (CHK), Palo Alto Networks (PANW), Coinbase, La-Z-Boy Marks (LZB) and Hostesses (TWNK)
Wednesday: Weekly crude oil inventories; revenues from Stellantis, Baidu (BIDU), TJX, Garmin (GRMN), Overstock, Wingstop (WING), Nvidia (NVDA), eBay, Etsy and Bumble
THURSDAY: weekly jobless claims in the United States; US GDP in the fourth quarter (second estimate); Eurozone inflation; Decision on interest rates in Turkey; earnings from Alibaba, Netease (NTES), Keurig Dr Pepper (KDP), Wayfair, Newmont, Domino’s (DPZ), Papa John’s (PZZA), Yeti (YETI), Nikola, owner of CNN Warner Bros. Discovery, Block (SQ), Booking Holdings (BKNG), Live Nation (LYV), Carvana (CVNA), Intuit (INTU) and Beyond Meat (BYND)
Friday: personal income and expenses in the United States; US PCE inflation figures; sales of new homes in the United States; inflation in Japan; Germany fourth quarter GDP; revenues from CIBC (CM), Scripps (SSP) and Cinemark (CNK)
SATURDAY: Berkshire Hathaway results and annual letter to shareholders from Warren Buffett
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