Gerard Miller | CNBC
As the coronavirus pandemic hit operating income and stock price heavily, Berkshire Hathaway stepped up its stock buyback program more in the third quarter, nearly double its record buyback from Q2.
Warren Buffett’s conglomerate bought back $ 9 billion of its own stock, it was revealed Saturday in its third-quarter earnings report. That was up from $ 5.1billion in the second quarter that turned around when it was announced, bringing Berkshire’s total acquisition amount to $ 15.7 billion for 2020.
Berkshire acquired more than $ 2.5 billion in Class A stocks and about $ 6.7 billion in Class B stocks during the quarter. This blew away UBS’s estimate of a total quarterly acquisition value of just $ 3.2 billion.
Buffett’s buyout deal comes in the wake of the company’s struggling operations as the global economy struggles to recover from the coronavirus, which directly impacts wholly-owned businesses. The company’s entire portfolio includes rail, utility and insurance.
Berkshire said its operating income reached $ 5,478 billion, down more than 30% from the same period last year. But the company’s net income – which accounts for Berkshire’s massive investments in a mass market like Apple – has soared more than 82% year-on-year to $ 30,137 billion.
Apple, Berkshire’s biggest stockholder, rose more than 26% in the third quarter. Coca-Cola has grown 10.5% during that time period. Even though Buffett warned investors not to pay attention to those net income, investment returns are impractical and volatile.
Does Buffett think stocks are cheap?
In his annual letter released earlier this year, Buffett discussed when he and Berkshire Vice President Charlie Munger will decide to buy back the stock.
“Our thinking, very hotly: Berkshire will buy back its stock only if a) Charlie and I believe it is selling at a price below its value and b) the company, after it’s done. Buy back, there’s plenty of cash left, ”Buffett wrote. “Over time, we want Berkshire’s shares to drop. If the value-to-value discount (as we estimate) expands, we may become more aggressive in buying stocks. Of course, we’re not going to raise stock prices to the level. “
Buffett also defended general practice at Berkshire’s annual meeting in May.
“When conditions are right, repurchases should be clear and shouldn’t have any effect on dividends,” he said.
Despite a nearly 20% return in the third quarter of Berkshire Hathaway’s Grade A shares, the stock is still far below the S&P 500 this year. Market share has lost 8%, compared to the S&P 500’s total 10% return.
Buffett’s buyout comes as Oracle of Omaha has made some big moves this year. In late August, Buffett announced that Berkshire had held at least a 5% stake in Japan’s top five trading companies: Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co., and Sumitomo. Corp. but the company has stated no. Other major acquisitions this year.
Even after record acquisitions this year, Berkshire’s cash flow remained at $ 145.7 billion until the end of the third quarter.
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