Berkshire Net Profit Doubles After Buffett Retires as Abel Boosts Alphabet Stake by $10 Billion, Increases Buybacks

As of the end of June, the company's cash and US Treasuries fell to approximately $365.5 billion, a significant decrease from the level of nearly $397 billion at the end of the first quarter. This marks Berkshire's first quarter-on-quarter decline in cash reserves in four years.

One key use of this was to repurchase shares.

In the second quarter, Berkshire repurchased a total of approximately $4.527 billion in shares, of which about $350 million was used to repurchase 478 Class A common shares, and another approximately $4.18 billion was used to repurchase about 8.6 million Class B shares. In contrast, the company repurchased only about $235 million in shares in the first quarter; therefore, the scale of buybacks in the second quarter expanded significantly, also marking a single-quarter high since 2021.

In terms of repurchase prices, the average repurchase price for the company's Class A shares was approximately $731,400 per share, and the average repurchase price for Class B shares was approximately $485.95, while both classes of shares closed significantly higher than these levels as of last Friday.

Berkshire does not have a fixed annual repurchase quota. According to principles previously disclosed by the company, repurchases will only be conducted when Abel, after consultation with Chairman of the Board Buffett, believes the company's share price is below its intrinsic value. Therefore, the expansion of the buyback scale in the second quarter is also viewed by the market as a signal of management's greater confidence in its own valuation.

However, Berkshire's Class B shares have recently neared all-time highs, so whether the company will continue to maintain such a high level of repurchases in the future still depends on the gap between the share price and its intrinsic value.

In addition to repurchasing its own shares, Berkshire significantly increased its investment in external equities during the second quarter.

The company purchased nearly $20 billion in stocks in the second quarter while selling approximately $3.7 billion, representing a significant net purchase of equities during the period. On a cumulative basis for the first half of the year, Berkshire bought approximately $39.405 billion in stocks and sold $27.78 billion, representing a net increase of about $11.6 billion.

This shift is particularly noteworthy because, prior to this, Berkshire had been in a net selling position for 14 consecutive quarters. In other words, since Abel took over, the company has been gradually reducing the massive cash stockpile accumulated over the past few years and re-elevating its asset allocation to equities.

As of the end of June, Berkshire's equity portfolio stood at approximately $323.779 billion. Alphabet has entered the company's top five equity holdings, joining American Express, Apple, Bank of America, and Coca-Cola as its core holdings, with the top five positions collectively accounting for about 66% of the stock portfolio.

Notably, Berkshire had previously reached a $10 billion investment agreement with Alphabet. As the transaction progressed, Google's parent company officially became one of Berkshire's core equity holdings.

In addition, Berkshire has pushed forward with several major transactions this year. At the beginning of the year, the company completed the acquisition of OxyChem, the chemical division of Occidental Petroleum, for a cash consideration of approximately $9.4 billion. In May, it announced the acquisition of homebuilder Taylor Morrison for about $6.8 billion; since this transaction was completed on July 24, it was not reflected in the second-quarter financial data.

During the final years of Buffett's tenure at the helm, Berkshire maintained massive cash reserves for a long period while curbing stock trading amid elevated market valuations. Now, after Abel has taken over, the company has begun to gradually improve capital efficiency through share buybacks, equity investments, and mergers and acquisitions.

This does not mean Berkshire will completely abandon its historically cautious investment principles. On the contrary, the company continues to emphasize value investing and intrinsic value, though capital allocation has become more proactive under Abel's leadership.

Paul Lountzis, president of Lountzis Asset Management, believes that given the current elevated valuations in public markets and equally expensive private markets, it is difficult to expect Abel to close major deals immediately, so investors should give the new management team some time.

As of the end of June, the company was still sitting on over $360 billion in cash and U.S. Treasuries, meaning Abel still has immense room for capital allocation in the future.

As of last Friday's close, Berkshire Class B shares closed at $521.80, rising about 9.6% over the past three months and outperforming the S&P 500's gain of approximately 4.9% over the same period; however, the stock is up only about 3.8% year-to-date, significantly lagging the S&P 500's return of around 13.3%.

This content was translated using AI and reviewed for clarity. It is for informational purposes only.