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Tuesday, August 27, 2024
Berkshire Hathaway Has a Big Cash 'Problem'
Most folks would never think of cash as a problem... But in a climbing market, it is.
Berkshire Hathaway Has a Big Cash 'Problem'
By Marc Chaikin, founder, Chaikin Analytics
Most folks would never think of cash as a problem...
But in a climbing market, it is.
That's especially true for asset managers.
They don't get paid to sit on piles of cash. They're supposed to put that money to work.
But right now, the legendary Warren Buffett's Berkshire Hathaway (BRK-B) has a cash problem. Put simply, the company is sitting on a massive pile of it.
Now, Berkshire can be more patient than most companies – since it's investing its own money.
But after some big selling in recent quarters, the company's cash position is getting large.
As of the end of the second quarter, Berkshire was sitting on roughly $277 billion in cash. That's the highest cash position in the company's history.
To put that number in perspective, only 27 companies in the S&P 500 Index have a market cap greater than $277 billion.
In other words, Berkshire has enough cash to buy any of the other 473 companies in the index.
It's a mind-boggling amount of cash.
And there's a simple reason Berkshire's cash pile has surged...
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Nvidia's stock is up 30% in anticipation of its earnings report tomorrow. But there's ONE thing CEO Jensen Huang likely won't mention. It has to do with three under-the-radar companies with exposure to Nvidia's new Blackwell chip technology... whose stock could skyrocket in the months ahead. See this before tomorrow's earnings report.
The company has been selling big chunks of its position in tech titan Apple (AAPL). It has also been trimming other holdings.
During the first half of this year, Berkshire sold more than 500 million shares of Apple. That worked out to roughly 56% of its position at the start of 2024.
At current prices, that's about $114 billion worth of Apple stock.
After accounting for its buying, Berkshire ended up with $75.5 billion in new cash from stock sales last quarter.
As you can see in the chart below, the company's cash position is staggering...
The takeaway is simple...
Berkshire's money needs to go somewhere.
And it hasn't seen many attractive stocks to buy recently. It only added two new names to its portfolio last quarter.
Berkshire bought a stake in cosmetics company Ulta Beauty (ULTA) worth roughly $266 million as of the end of the second quarter.
And it opened a position in Heico (HEI), a midsized aerospace supplier. As of the end of June, that position was worth $185 million.
It also added to its existing positions in oil and gas firm Occidental Petroleum (OXY) and satellite-radio company Sirius XM (SIRI). But otherwise, there haven't been signs that Buffett has seen major bargains in the stock market.
So, there's no question that Berkshire will need to allocate cash eventually. An asset manager can't simply sit on the sidelines and let a strong market pass it by.
And don't let the market pass you by, either...
As I said, the Power Gauge is "bullish" on the S&P 500 right now. That means our system sees upside ahead for stocks.
So if you're sitting on the sidelines with cash, don't miss out on the market's next leg higher.
Good investing,
Marc Chaikin
Market View
Major Indexes and Notable Sectors
# Hld: Bullish Neutral Bearish
Dow 30
+0.22%
9
17
4
S&P 500
-0.25%
155
277
58
Nasdaq
-0.96%
20
63
16
Small Caps
+0.02%
629
976
322
Bonds
-0.25%
— According to the Chaikin Power Bar, Small Cap stocks and Large Cap stocks are Bullish. Major indexes are mixed.
* * * *
Sector Tracker
Sector movement over the last 5 days
Real Estate
+2.92%
Materials
+2.35%
Staples
+2.03%
Utilities
+1.31%
Financial
+1.27%
Industrials
+1.1%
Health Care
+1.02%
Discretionary
+0.58%
Communication
+0.53%
Energy
+0.16%
Information Technology
-1.73%
* * * *
Industry Focus
Software & Services
19
87
29
Over the past 6 months, the Software & Services subsector (XSW) has underperformed the S&P 500 by -7.10%. Its Power Bar ratio, which measures future potential, is Weak, with more Bearish than Bullish stocks. It is currently ranked #17 of 21 subsectors and has moved up 2 slots over the past week.
Indicative Stocks
ALTR
Altair Engineering I
MSTR
MicroStrategy Incorp
NN
NextNav Inc.
* * * *
Top Movers
Gainers
DAY
+3.96%
JKHY
+2.56%
EOG
+2.49%
WBD
+2.24%
XEL
+2.23%
Losers
SMCI
-8.27%
AVGO
-4.05%
MU
-3.83%
LRCX
-3.36%
TSLA
-3.23%
* * * *
Earnings Report
Reporting Today
Rating
Before Open
After Close
AZO, BBY
JWN, NCNO, PVH, S
No earnings reporting today.
Earnings Surprises
HEI HEICO Corporation
Q3
$0.97
Beat by $0.05
* * * *
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This work is based on SEC filings, current events, interviews, corporate press releases, and what we've learned as financial journalists. It may contain errors, and you shouldn't make any investment decision based solely on what you read here. It's your money and your responsibility.
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