U.S. stocks closed out February in the red, and the S&P 500 Index ($SPX) is now up just over 1% for the year. Amid concerns ranging from a growth slowdown to trade wars, sticky inflation, and a slower trajectory for the Fed’s rate cuts, defensive stocks have done relatively well this year.
To be sure, there is much to worry over about the economy and, by extension, the stock market. The artificial intelligence (AI) euphoria has faded, and the mere mention of the word “AI” during earnings calls is not being cheered. Instead, markets are questioning tech companies’ ability to generate returns on their AI investments. Even the formidable Nvidia (NVDA) hasn’t been able to convince markets despite posting better-than-expected earnings for its fiscal Q4 2025.
Meanwhile, amid all the noise, Berkshire Hathaway (BRK.B) is up over 13% for the year.
Berkshire Is a Diversified Business
Although Buffett has pushed back on Berkshire being labeled as a “conglomerate” or as a “diverse” business, it is both of those things. Its portfolio spans multiple industries, with Berkshire taking stakes in some businesses and owning others outright.
The insurance business is the largest and perhaps the most important for Berkshire, as its float provides tons of cash to the company, which Buffett and his lieutenants then invest.
Per Buffett, the second and fourth “jewels” of his business were BNSF Railway and Berkshire Hathaway Energy, respectively. Buffett listed Berkshire’s stake in Apple (AAPL) as third on the list in 2020, but Berkshire has since sold the bulk of its stake, even though it still holds 300 million shares valued at over $70 billion. The iPhone maker is the largest holding in Berkshire’s portfolio of publicly traded companies, which is valued at around $300 billion.
In addition, Berkshire holds an ever-increasing pile of cash, which stood at a mammoth $334 billion at the end of 2024 – almost entirely invested in short-term U.S. Treasurys. I view the cash holdings as another key pillar for Berkshire and an integral part of its story.
Why Berkshire Hathaway Is a Good Defensive Stock
Think of Berkshire Hathaway as a fund that’s sitting on cash worth around 30% of its market cap. While Buffett has been a net seller of stocks for nine consecutive quarters, he is always hunting for investment ideas. Someone worried about current market valuations would find solace in Berkshire’s cash hoard, which might be put to work once Buffett turns into a net buyer of stocks, as he did in 2022 when U.S. markets fell.
In addition to its massive cash hoard, Berkshire is inherently a defensive business that does not take undue risks. The cherry on the top is that its key subsidiaries are doing well, which helped it post record operating earnings of $47.7 billion in 2024, 27% higher than the previous year. Importantly, the company achieved the feat even as operating earnings in 53% of its 189 operating businesses fell year-over-year.
The key takeaway from Berkshire’s 2024 was the splendid performance of its insurance business, especially GEICO. Buffett credited Todd Combs for turning around the business by “increasing efficiency and bringing underwriting practices up to date.”
“GEICO was a long-held gem that needed major repolishing, and Todd has worked tirelessly in getting the job done. Though not yet complete, the 2024 improvement was spectacular,” added the nonagenarian in the 2024 annual letter.
Berkshire Stock Forecast: Analysts Turn Bullish After Q4 Earnings
Berkshire’s 2024 earnings were well received by Wall Street, with the stock rallying almost 5% and sell-side analysts raising their target prices. UBS’s Brian Meredith, for instance, raised his target price to $557 from $536 and was particularly impressed with the turnaround in GEICO, a view shared by TD Cowen’s Andrew Kligerman.
“We continue to believe BRK’s shares are an attractive stock in an uncertain macro environment, while insurance fundamentals remain strong and with good margin visibility,” said Meredith in his note, perhaps best summing up why Berkshire is a good buy amid the current scenario
Buffett Has Not Repurchased Berkshire Shares for 2 Quarters
Berkshire offers the best of both worlds with a catch – Berkshire hasn’t repurchased any shares for two consecutive quarters now. In its 2024 annual report, Berkshire says that the company repurchases shares when Buffett “believes that the repurchase price is below Berkshire’s intrinsic value, conservatively determined.”
It would be fair to say that Buffett does not find Berkshire shares undervalued – at least by his yardstick – which the buyback policy says is “conservative.” But then, there is hardly anything that the legendary investor finds attractive in these markets, as we can infer from the flurry of stock sales over the last 2 years.
That said, Berkshire is still one of those names that can beat the S&P 500 Index over the long term. Notably, while Berkshire’s various operating businesses stand to benefit from any improvement in the U.S. economy, its cash pile will come in handy in case the economy does not perform well.
Overall, I find Berkshire a decent buy at current prices, especially for someone hunting for a defensive name.
