This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Key Points
- Much of the stock's weakness this year has seemingly been revolving around Warren Buffett's exit.
- The big pull on this stock is the huge cash pile that the company has accumulated.
- The stock might experience a slow patch, given the changes occurring, but the long-term potential is still there.
Berkshire Hathaway (NYSE: BRK.B) has long been synonymous with its legendary leader, Warren Buffett. The conglomerate recently received a downgrade from KBW, citing concerns over Buffett's exit, as well as problems in some of its key areas of business. Overall, I think that any pullback in the stock is a buying opportunity. To think that Warren Buffett has been the only one making decisions at Berkshire Hathaway seems a bit naive. His cohort is good at what they do. Moreover, the thing that gets ignored about Buffett's succession is how much money the Oracle of Omaha is leaving on the table for investment. Buffett has amassed a giant cash pile, which gives the company a great deal of maneuverability in the coming years in terms of investment options.
A downgrade rooted in succession anxiety
According to CNBC, KBW's downgrade reflects mounting worries about Berkshire's ability to sustain performance without Buffett's steady hand. The firm pointed to ongoing challenges in its core operating units, which include its railroad division and its insurance businesses. While the firm could certainly be correct that there are headwinds facing these areas of Berkshire's business, they aren't necessarily permanent, and they don't change the fundamental strength of Berkshire's diversified model.
A prime example here was the performance displayed in the third quarter. Despite concerns from KBW, Berkshire's most recent results, which came out on Saturday, imply good things. Berkshire reported a whopping 34% increase in operating profit within its wholly owned businesses. These include Berkshire's insurance businesses and railroads. One of the main areas of strength was insurance underwriting income. This key area for Berkshire saw income increase to $2.37 billion.
Some seem to forget that Buffett hasn't been making decisions in a vacuum. His successors have been quietly shaping the company's operations for years. Greg Abel, Buffett's chosen heir for the CEO role, has overseen Berkshire's non-insurance operations since 2018. Abel has earned Buffett's trust and the trust of many inside the company. The idea that Berkshire's success vanishes the moment Buffett leaves seems a bit short-sighted.
The power of $381 billion
Perhaps the key element of Berkshire's future potential is its enormous cash pile -- now sitting at a record $381.6 billion. This war chest gives Berkshire virtually unmatched flexibility in deploying capital during market downturns or periods of economic stress. In fact, Buffett's own conservative approach to investing in recent years may be setting the stage for significant opportunity under new leadership.
That cash reserve is more than just a number -- it's a strategic weapon. Should markets experience a correction, Berkshire will be in an ideal position to make large, opportunistic acquisitions or buy distressed assets at attractive valuations.
I seriously doubt that Abel will act too quickly on this cash pile, but for long-term-oriented investors, it's hard to pass up a company that has so much "fresh powder" at its disposal. Buffett himself has preached a philosophy of focusing on buying "businesses" rather than stocks. To follow that mantra, it's not hard to invest in Berkshire. How many companies do you know that carry over $380 billion in buying power? For perspective, Berkshire has so much money in its hands that it could buy General Motors (NYSE: GM) almost six times over.
A slow moment for Berkshire
I'll admit this is a slow time for the stock. With Buffett leaving, investors might be less eager to pay that "Buffett premium" for his investing prowess, as evidenced in the conglomerate's stock performance so far in 2025, with only 5.86% gains. By comparison, simply being invested in the S&P 500 has created returns of 16.56%. This seems to be motivated by simple uncertainty. Change is hard, and it seems likely that investors will be critical of Greg Abel's new management for a little while. Still, I don't think these troubles warrant avoiding the stock if you have a long-term mindset.
Uncertainty often breeds fear. But Berkshire's strength has always been its structure: a collection of durable, cash-generating businesses led by disciplined capital allocators. Buffett's departure will undoubtedly mark the end of an era, but it doesn't mark the end of Berkshire's success story. With the capital at its disposal, and a cohort of investors that have learned from the greatest of all time, I think Berkshire has a bright future, and buying on weakness makes sense.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
