Is Berkshire Hathaway Stock a Buy Now?

If you pay any attention to Berkshire Hathaway (NYSE: BRK.B) (NYSE: BRK.A), you're probably aware that the company is preparing for Warren Buffett's looming retirement. The legendary investor and longtime CEO will step aside at the end of the year, formally handing the reins to Greg Abel, his hand-picked successor.

Berkshire has been a remarkably successful investment during Buffett's tenure, becoming one of the world's largest corporations and assembling a magnificent collection of subsidiaries and stakes in publicly traded companies. But now the famous holding company faces an uncertain path forward, arguably for the first time in decades.

Should you consider buying the stock now? Should you wait until the incoming CEO, Greg Abel, puts in some time at the helm first? Here's what you need to know.

Image source: Getty Images.

Why Warren Buffett's retirement shouldn't deter investors

Nobody builds empires alone, but there's no question that Warren Buffett was the instrumental force that made Berkshire Hathaway what it is today. It's only natural to fear what may happen now that Buffett is stepping down.

That said, investors shouldn't avoid Berkshire simply because Buffett is leaving. Warren Buffett was famous for his ability to focus on the long term, a mindset that guided his investing career. It should go without saying that Buffett has been preparing Berkshire Hathaway for his departure for years.

Not only did Buffett personally pick Abel, a longtime Berkshire Hathaway employee, to replace him, but he also made Berkshire Hathaway a diversified economic juggernaut, with operations spanning insurance, energy, utilities, railroads, manufacturing, and consumer-facing retail brands. That's before we get into the company's famous stock portfolio.

In a sense, Berkshire's various pieces can almost run themselves. That doesn't mean poor leadership can't drag the company down over time, but it's doubtful -- to say the least -- that Berkshire Hathaway will fall apart the moment Buffett steps out. Investors should have some faith in the culture and systems Buffett has meticulously built within his company.

This is the company's true uphill challenge

What could weigh on Berkshire Hathaway's future investment returns, however, is the company's massive size. In total, it generates over $370 billion in annual revenue, and the stock's market cap is approaching $1.1 trillion.

Buffett himself recently noted, in his final Thanksgiving shareholder letter, that Berkshire's size will likely stunt the stock's upside, predicting that many companies will outperform it over the next decade or two.

Additionally, Greg Abel and the rest of the management team will face major decisions on how to allocate a cash hoard that has swelled to just over $381 billion, roughly a third of the company's market cap. All that cash provides safety and ample resources to be opportunistic, but just as potential must be realized, management still has to actually use that capital wisely.

How Berkshire Hathaway ultimately uses that cash will directly impact the stock's performance.

Is Berkshire Hathaway stock a buy now?

Berkshire is in a bit of a wait-and-see mode at the moment as Buffett steps down and Greg Abel steps up.

The stock currently trades at approximately 1.9 times its tangible book value, slightly below its long-term norms since 2000:

Data by YCharts.

Given that the company's size may work against its future growth, it would probably be best to buy shares at a discount. Remember, Berkshire Hathaway must create significant value with all that cash to realistically move the needle for the company as a whole.

Buffett hit a home run when he invested in Apple, then ultimately sold off a bunch of that stock to raise much of the cash you see now. But even if Buffett, who talked up his replacement in his recent letter, has complete confidence in Abel and his team, that cash will likely remain a double-edged sword until hindsight verifies that Berkshire spent it wisely.

It's probably best to avoid Berkshire Hathaway stock until the valuation leaves a little more margin of safety, just in case things don't go as well as hoped under new leadership.

Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool has a disclosure policy.