Does Berkshire Hathaway Support All-Time Highs?

With shares of Berkshire Hathaway (NYSE:BRKA) trading around $166,400, is BRKA an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Berkshire Hathaway is a holding company owning subsidiaries engaged in a number of diverse business activities. It is one of the few publicly owned and successful investment managers. The company is primarily engaged in insurance businesses conducted on both a primary basis and a reinsurance basis. Warren Buffett has led Berkshire Hathaway to great successes as one of the best performing investment managers of our time. The insurance business continues to see significant progress as consumers, investors, and companies look now, more than ever, to mitigate new and existing risks. Following a well performing investment process, look for Warren Buffett and Charlie Munger to lead Berkshire Hathaway towards rising profits.

T = Technicals on the Stock Chart are Strong

Berkshire Hathaway stock has seen a consistent uptrend over the last several years. The stock is now trading at all-time high prices on stable and increasing earnings by the company. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Berkshire Hathaway is trading above its rising key averages which signal neutral to bullish price action in the near-term.

BRKA

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Berkshire Hathaway options may help determine if investors are bullish, neutral, or bearish. For this analysis, we used Berkshire Hathaway’s B shares since these do have active options while the A shares do not.

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Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Berkshire Hathaway Options

17.73%

26%

25%

What does this mean? This means that investors or traders are buying a small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

June Options

Flat

Average

July Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a small amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Berkshire Hathaway’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Berkshire Hathaway look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

51.42%

49.34%

71.96%

-9.17%

Revenue Growth (Y-O-Y)

14.99%

17.82%

21.67%

0.71%

Earnings Reaction

1.28%

0.45%

-0.19%

-0.54%

Berkshire Hathaway has seen increasing earnings and revenue figures over the last four quarters. From these figures, the markets have been pleased with Berkshire Hathaway’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Berkshire Hathaway stock done relative to its peers, American International Group (NYSE:AIG), WR Berkley (NYSE:WRB), Union Pacific (NYSE:UNP), and sector?

Berkshire Hathaway

AIG

WR Berkley

Union Pacific

Sector

Year-to-Date Return

23.28%

26.12%

13.94%

22.31%

22.07%

Berkshire Hathaway has been a relative performance leader, year-to-date.

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Conclusion

Berkshire Hathaway is a well-regarded investment manager that has been led by Warren Buffett to great successes. The stock has risen consistently over the last several years and is now trading at all-time high prices. Earnings and revenue have shown steady growth, over the last four quarters, which has really pleased investors. Relative to its peers and sector, Berkshire Hathaway has been a year-to-date performance leader. Look for Berkshire Hathaway to OUTPERFORM.

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