Should You Buy Berkshire Hathaway B Shares While They Are Below $550?

Warren Buffett recently announced he'll step down as chief executive officer of Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) at the end of 2025, with Vice Chairman of Non-Insurance Operations Greg Abel set to take over. Buffett will remain chairman, but the transition marks a significant milestone for the $1.1 trillion company. Buffett has led the company since 1965 and during that time it delivered an unparalleled 19.9% annualized return through 2024, nearly double the S&P 500.

Berkshire shares have dipped about 5% since the announcement, as investors adjust to the idea of new leadership. With that shift on the horizon, it's a good time to take stock of where Berkshire stands and how Abel may shape its future.

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Here are Berkshire's assets

Before digging into Berkshire's latest earnings release, here's a refresher on Berkshire Hathaway's assets, which Abel will soon oversee.

Today, Berkshire Hathaway owns 189 operating businesses, including major names like BNSF Railway, Dairy Queen, and See's Candies. However, its full ownership of insurance powerhouse GEICO -- acquired in 1996 -- has arguably been its most powerful growth engine. As a property and casualty insurer, GEICO collects premiums up front, creating what's known as float. Berkshire can invest this float until policy claims are paid out, effectively turning insurance operations into a source of investment capital. During the past two decades, Berkshire's float has expanded from $47 billion to $173 billion, fueling the growth of a stock portfolio now valued at roughly $279 billion. The company currently holds positions in 44 publicly traded companies, with Apple, Coca-Cola, and American Express its top three holdings.

In addition to its businesses and investments, Berkshire has amassed a record $348 billion in cash and cash equivalents. Most of this is parked in short-term U.S. Treasury bills -- low-risk government-issued debt that matures in a year or less -- currently yielding between 4% and 4.3%. Berkshire could earn nearly $14 billion in interest over the next year at those rates, assuming yields remain stable.

What else could Abel do with Berkshire's cash?

Despite Berkshire's current cash strategy, Buffett has previously written that he dislikes parking cash in Treasury bills. In a previous shareholder letter, Buffett wrote, "Over the long term, however, [Treasury bills] are riskier investments -- far riskier investments -- than widely diversified stock portfolios that are bought over time." He also said Berkshire only invests in Treasury bills when it "can't find anything exciting in which to invest," citing their safety and liquidity as advantages.

At Berkshire's most recent annual meeting, with the company's CEO transition on the horizon, Abel addressed his approach to capital allocation. He began by stressing the importance of financial strength:

We will have a fortress of a balance sheet. ... We've got a significant set of cash right now, but it's an enormous asset to have that. And that will continue to be a philosophy.

Abel then outlined his capital allocation priorities. First, he focuses on reinvesting in Berkshire's existing operating businesses. Next, he looks to acquire entire companies. And finally, he considers partial ownership stakes in publicly traded companies.

In closing, Abel offered reassurance to shareholders about the future of Berkshire's investment strategy: "How Warren and the team have allocated capital for the past 60 years, really, it will not change. And it's the approach we'll take as we go forward."

Here's how Berkshire Hathaway could benefit in a recession

Thanks to its huge cash reserves, Berkshire Hathaway is well positioned to benefit if a recession hits. You don't have to look far to find examples of how the company has historically thrived during economic slowdowns.

During the 2008 financial crisis, Berkshire purchased $5 billion in preferred shares of Goldman Sachs, redeeming them three years later for a $3.7 billion gain. In 2009, it provided a $303 million loan to Harley-Davidson at a steep 15% interest rate, helping the motorcycle manufacturer maintain financing for its customers and dealers. And in 2011, Buffett invested $5 billion in Bank of America preferred stock and warrants, which has netted over $30 billion in paper profits to date.

Although no one can say exactly when the next recession will arrive, Berkshire's incoming CEO will have both the liquidity and the playbook to seize opportunities when it does.

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Is Berkshire Hathaway stock a buy, hold, or sell?

If anyone has proven that leadership matters, it's Buffett. And whenever a new CEO steps in, it's natural to question how effective they will be in the role. For now, investors will have to trust Buffett's judgment -- something that has delivered exceptional returns for decades.

Not only does Abel have the full backing of Buffett, but he is set to inherit a company that is flush with cash and generated $45.8 billion in operating earnings over the trailing 12 months, meaning the odds of success are overwhelmingly in his favor.

The only real question is whether Abel can drive Berkshire forward as effectively as Tim Cook did with Apple after Steve Jobs. Even so, with its resilient business model and potential upside in an economic downturn, Berkshire remains a compelling buy for long-term investors.

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American Express is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. Collin Brantmeyer has positions in American Express, Apple, and Berkshire Hathaway. The Motley Fool has positions in and recommends Apple, Bank of America, Berkshire Hathaway, and Goldman Sachs Group. The Motley Fool has a disclosure policy.