Berkshire Hathaway’s Buffett-Era Investment Edge May Fade Under Greg Abel, Morningstar Says

Morningstar said that Berkshire Hathaway's track record “has gotten thinner over the years.”

• With Greg Abel taking over as CEO, Morningstar expects Berkshire’s investment opportunities and returns to be lower than in the past. 
• The analyst said Buffett is expected to continue advising Abel on investment decisions. 
• The firm has a “Narrow” Economic Moat and a “Low” Uncertainty Rating on the shares. 

Berkshire Hathaway Inc. (BRK.A, BRK.B) may see lower investment returns following Warren Buffett’s departure as CEO, according to Morningstar.

The firm said Berkshire’s operating businesses have generally provided a “narrow moat,” while management’s ability to invest excess cash from those businesses at returns above its cost of capital historically supported a “wide moat” rating.

Morningstar said that track record “has gotten thinner over the years.” Berkshire’s size now requires increasingly large acquisitions or stock investments to make a meaningful impact, while the pool of attractive opportunities has become more limited.

Can Greg Abel Replicate Buffett's Capital-Allocation Edge?

With Greg Abel taking over as CEO, Morningstar expects Berkshire’s investment opportunities and returns to be lower than in the past. The analyst said Buffett is expected to continue advising Abel on investment decisions. 

Morningstar also said Berkshire’s “huge and growing sums of capital” will ultimately limit its ability to generate outsize returns.

The firm has a “Narrow” Economic Moat and an Uncertainty Rating of “Low” on the shares. The firm also said Berkshire’s operating businesses continue to provide competitive advantages, particularly its insurance operations, which generate low-cost float. However, Morningstar has seen “slippage in some of the moat sources” supporting several of Berkshire’s main businesses.

Berkshire Turns Buyer Again, Loads Up On Alphabet

The analyst noted that the company held $299.3 billion in 13F-reportable equity securities at the end of June, excluding foreign holdings. Including those investments, its total stock holdings were at $344.3 billion.

Berkshire recorded $23.5 billion in purchases and $3.7 billion in sales during the second quarter, resulting in $19.8 billion in net purchases.

Berkshire sold 30.2 million Bank of America (BAC) shares for an estimated $1.6 billion, along with positions in Lennar Corp. (LEN) Class A, Capital One Financial Corp. (COF) and Kroger Co. (KR).

Meanwhile, the company purchased 24.5 million Alphabet Inc. Class A (GOOGL) shares worth about $7.9 billion and 23.6 million Alphabet Class C shares (GOOG) worth about $7.6 billion. It also bought 17.5 million Delta Air Lines (DAL) shares and 12.4 million Lennar Class B shares.

Company	Ticker	Berkshire’s Q2 Moves
Alphabet	GOOGL	Added
Alphabet	GOOG	Added
Delta Air Lines	DAL	Added
Lennar	LEN	Added
Lennar	LEN.B	Added
Macy’s	M	Added
New York Times	NYT	Added
D.R. Horton	DHI	Added (New position)
Bank of America	BAC	Trimmed
Capital One	COF	Trimmed
Kroger	KR	Trimmed
Nucor	NUE	Trimmed
Ally Financial	ALLY	Trimmed
DaVita	DVA	Trimmed
Constellation Brands	STZ	Exited

The firm described the larger Alphabet position as a “marked shift” for Berkshire, which has historically favored businesses with more predictable economics.

BRK.A Stock: Retail Stance

On Stocktwits, retail sentiment around BRK.A stock was ‘bearish’ at the time of writing amid ‘low’ message volumes. 

For BRK.B, sentiment was ‘neutral’ amid ‘high’ message volumes. 

One user said, “$BRK.B Abel should have bought GOOG 3 years ago. Too late to the party.”

Another user said, “$BRK.B This is perhaps the cheapest hedge you can find against your super charged AI stock portfolio. When the market crashes, Buffett’s huge cash pile will pick up the quality stocks on the cheap. It is like buying a leveraged cash position.”

BRK.A and BRK.B shares have gained about 4% in the last one year. 

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