Berkshire Hathaway Inc. jumped to a record high after its Saturday earnings report showed an operating profit for the second quarter that exceeded Wall Street expectations.
Class B shares of Warren Buffett’s conglomerate of railroad, utility, energy and insurance companies gained 3.6% on Monday to $362.58, for the highest close ever. It marks the sharpest gain since November, powering the stock past the previous all-time high set in March last year.
“We still think Berkshire is an attractive name to own in a diversified financial portfolio due to its defensive qualities,” Jim Shanahan, an analyst at Edward Jones, said by phone. “Their earnings outlook improved a lot in the last 9 to 12 months as interest rates have moved higher and cash balances are back to approaching record levels.”
The more thinly traded Class A stock also set a closing record, at $551,920.
The B shares are now up about 17% this year, around even with the S&P 500 Index.
The firm’s results showed a jump in insurance underwriting earnings, which included a benefit from its acquisition of Alleghany Corp. The Federal Reserve’s campaign of interest-rate hikes also helped, by boosting Berkshire’s investment income from the cash it stockpiles in short-dated US Treasuries.
“Operating Company earnings of about $9 billion were better than we expected as strength in insurance, including favorable reserve development at Geico and higher fixed investment income, offset a drop in railroad earnings,” Bloomberg Intelligence analyst Matthew Palazola wrote in a report.
Economic Microcosm
As the largest S&P 500 stock outside of the tech giants, Berkshire’s record high highlights the breadth of the market’s rally and the depth of optimism for the US economy.
The Omaha, Nebraska-based holding company operates and invests in all corners of the US economy, well beyond its core insurance businesses like Geico. Businesses ship their goods along thousands of miles of BNSF rail routes. Consumers live in Clayton Homes communities, coat their walls with Benjamin Moore paint and eat Dairy Queen blizzards.
“You can make the argument that Berkshire is kind of a microcosm for the broader economy and indeed maybe the broader market,” Cathy Seifert, an analyst at CFRA, said by phone.
Apple Stake
This year, Berkshire shares have bounded higher alongside the broader market. The stock of Apple Inc., which touched a market capitalization of $3 trillion this year, has been one driver.
The tech giant makes up the largest holding in Berkshire’s equity portfolio, and the roughly 38% surge in Apple shares this year helped expand that value.
“Apple ripping higher this year is certainly directionally positive for Berkshire stock,” Shanahan said. “It’s not the only thing that should be driving the shares here.”
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