When it comes to choosing a single stock for a Stocks and Shares ISA, we Fools often preach diversification. But if pushed to pick just one company, I’d have to go with the legendary Berkshire Hathaway (NYSE: BRK.B). Let’s take a closer look.
Proven track record
Led by the incomparable Warren Buffett, Berkshire has become a byword for savvy, long-term value investing. The company’s Class A shares have delivered an eye-watering 39,225% return since its IPO in the 1980s.
But Berkshire isn’t just another company – it’s a smorgasbord of quality businesses all rolled into one tasty package. From insurance giant GEICO to the BNSF railway, and from Berkshire Hathaway Energy to a host of manufacturing firms, this conglomerate offers a good deal of built-in diversification.
And let’s not forget Berkshire’s mouth-watering portfolio of blue-chip stocks. Fancy a bite of Apple, Bank of America, or Coca-Cola? Berkshire’s got it covered. This diversification means that when one sector catches a cold, the others can help pick up the slack.
The fundamentals
Berkshire’s sitting on a war chest of over $140bn in cash and short-term investments. That’s not just a rainy day fund, it’s a ‘buy-companies-when-they’re-going-cheap’ fund.
Speaking of buying cheap, the business itself looks like it might be at a discount. With a price-to-earnings ratio of around 11.4 times, it’s trading well below the S&P 500 average. For a company with it’s track record, that feels like a potential bargain. With my favourite metric, a discounted cash flow (DCF) calculation, the shares are potentially as much as 51% undervalued too.
But what about the future? Its energy businesses are adapting to the renewable transition, and its insurance operations continue to generate piles of cash for investments. And while Buffett won’t be at the helm forever, the company’s been planning for succession for years. Trusted lieutenants like Greg Abel are waiting in the wings, ready to carry on.
Risks
Of course, no investment is without a few notable risks. The firm’s sheer size can make it hard to find acquisitions big enough to move the needle. Those seeking dividends will also need to look elsewhere. I’d also say with 47 holdings, investors can’t necessarily review every company in the portfolio. Although the record’s good, investors do need to trust that management will continue to make smart decisions.
I also worry that any regulatory change in the insurance sector could impact the business. It has served as a real cash cow over time, but if this were to change, then investors may get nervous.
One for the future
Obviously, past performance doesn’t guarantee future results. But I suspect Berkshire’s enduring success, strong fundamentals, and relatively attractive valuation make it a tempting choice for long-term investors.
So for those looking for a one-stop shop that could potentially deliver solid returns over the long haul, Berkshire Hathaway might just be worth a closer look. There’s never a sure thing in the market, but I already hold some of its shares and feel they can help me sleep soundly.
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Gordon Best has positions in Berkshire Hathaway. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
