On the June 8 episode of The Morning Filter podcast, Morningstar Chief US Market Strategist Dave Sekera discussed Berkshire Hathaway’s BRK.A BRK.B new investments in Taylor Morrison Home TMH and Alphabet GOOGL and whether Berkshire is an attractive stock to buy today. Here’s an excerpt from the episode.
Susan Dziubinski: One of your picks, Berkshire Hathaway, was in the news last week, after it actually made a couple of investments and put some of that massive cash stockpile to work. So first, Berkshire bought Taylor Morrison Home. What are your thoughts on that acquisition?
David Sekera: In the greater scheme of things, when you look at Berkshire and just the size of Berkshire, this really isn’t all that meaningful one way or the other. Now, as far as Taylor Morrison, that’s not a company we covered, so I have no opinion specifically on the valuation there.
But I think what’s more interesting would be to know, was this a purchase because Greg Abel is now making a timing bet on homebuilding and the recovery there? Are they starting to see recovery in homebuilding here in the short term? Or is this maybe just a company where they’ve had their eye on it for a while? Homebuilding, of course, being somewhat in the doldrums, those homebuilding stocks have relatively low valuations. So, maybe it’s just a matter of they wanted to buy this company for a while, and now they finally got the opportunity to do that.
But I think it’s interesting because the company has a number of other positions in homebuilding stocks. They own Clayton Homes. So, this might be a case where maybe they actually have a little bit better insight than the market on the homebuilding sector.
Dziubinski: That’s interesting. They also have, I think, a couple of homebuilding stocks in the public portfolio, so it’ll be interesting to see if they do anything with those.
Berkshire’s other big news this week was that it plans to invest an additional USD 10 billion in Alphabet GOOGL as part of Alphabet’s $80 billion announced equity raise. And doing that will lift Alphabet to about a 9.5% weighting in Berkshire’s portfolio. What are your thoughts on that one, Dave?
Sekera: Well, obviously, now Alphabet is a core holding in their public equity portfolio. I think this, to some degree, shows how management under Greg Abel is now more comfortable with investing in technology as opposed to, historically, they steered clear of that under Warren Buffett. We’ll see if this is maybe a trend going forward. I also wonder, too, with Greg Abel taking the reins here relatively recently, I wonder if maybe he’s starting to feel some pressure to put that huge cash pile to work. This might be a case where we start seeing a lot more of these larger investments over the next couple of months.
Dziubinski: Just strictly from a valuation perspective, how’s Berkshire look today? Would you still consider it a pick?
Sekera: Yeah, I mean, you can’t be any more of a value stock than buying into Berkshire Hathaway. It’s a 4-star-rated stock that trades at a 7% discount. Now, a 7% discount may not necessarily sound like that much, but you have to remember, I think a third of their portfolio is in cash. Cash is always worth 100 cents on the dollar. So, the way I look at this is that 7% discount really should be attributed mostly to the private equity portfolio that they own. That tells me you’re buying that private equity portfolio at a much larger discount.
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