BerBer Hathaway's stock buyback reverses Berkshire Hathaway’s fortunes

BerBer Hathaway's stock buyback reverses Berkshire Hathaway’s fortunes

The old adage: Buy the dip. is followed by the reversal of the Warren Buffett's Berkshire Hathaway Inc.

The conglomerate reported $45.2 billion in purchases in the quarter after subtracting sales in the second quarter of results released Saturday. It bought a total of $41.4 billion in shares in the first three months of 2022, after being a net seller in the second quarter of last year.

Berkshire came in as the S&P 500 fell 16% in the quarter. The insurance and railroad businesses posted gains, and the operating profit was $9.2 billion, according to the Omaha, Nebraska-based company.

One business flashing potential warning signs is Geico, the company's personal auto insurance unit, said Cathy Seifert, an analyst with CFRA Research. The conglomerate's other insurance lines gained alongside the division's investment income, as it reported an underwriting loss of $487 million.

Seifert said the report as a whole reflected decent top-line growth, still decent demand for various goods and services, offset by higher input costs and volatility in equity markets. Berkshire said losses at Geico were the result of higher claim severity due to rising used-car prices and auto parts shortages. The business is losing market share as customers are looking for better rates elsewhere, as the policies-in-force declined even as it increased premiums, according to the company.

Seifert said that they are in a tough spot right now and that the same trends are playing out at other auto insurers, but they seem to be hitting Geico particularly hard. It is probably a good idea to watch for further deterioration. The same market weakness that is increasing Buffett's buying power is weighing on his company's results, at least on paper. The company had a net loss of $43.8 billion due to a $53 billion loss in the company's investment portfolio. Berkshire downplays those results as a function of accounting rules, saying they give a misleading picture of the company's actual performance.

Berkshire was a net buyer of equities in 2 Q by over $45 billion, or $86.6 billion in 2022, compared to a $16 billion net seller in 2020 -- 21. We think this course may continue and doesn't necessarily signal that Buffett is bearish on his own shares; buybacks have historically been a lower priority for the company's capital. The repurchases of $1 billion in 2Q declined from the 2021 pace of $7 billion a quarter. Buffett's appetite for his own stock declined even as he piled into shares elsewhere. In the second quarter, the stock buybacks clocked in at $1 billion, lagging the $3.2 billion in repurchases made at the beginning of the year.

In June, Berkshire Hathaway Energy acquired $870 million in common stock from Vice Chairman Greg Abel, according to the company. The transaction was not previously disclosed.

Berkshire made only a measly dent in its cash pile despite the spending spree. The company reported $105.4 billion at the end of June, barely surpassing the $106 billion mark at the end of the first quarter.

The aggressive pace at which Berkshire picked up shares of Occidental Petroleum Corp. has raised questions as to whether Berkshire is looking to make an acquisition of the energy giant. The company didn't provide any insight into its strategy in this quarter's regulatory filing.

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