Berkshire Hathaway – Still a Buy at All-Time Highs?

Berkshire Hathaway (NYSE:BRK.B) stock is riding high. Is Brookfield Corporation (TSX:BN) a good Canadian alternative?

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Berkshire Hathaway (NYSE:BRK.B) stock has been doing extremely well lately. Over the last five years, the stock has risen 101%, while the S&P 500 has delivered a 96% total return with dividends reinvested. The Oracle of Omaha just keeps on winning!

The question that investors need to ask themselves now is, “Is Berkshire Hathaway stock still a buy today, at its fresh all-time high?” Stocks can be good buys at all-time highs; if that weren’t the case then big tech stocks wouldn’t have risen so consistently over such a long period of time. Nevertheless, Berkshire stock is more expensive now than it was in the recent past. So, it’s worth taking a look at where it stands today in terms of valuation.

Why Berkshire is riding high

There are basically two components of Berkshire Hathaway’s strong performance in the last five years:

  • A favourable overall market environment.
  • Good investments by Warren Buffett and his team.

First, the overall market environment has been a factor in Berkshire’s performance. Berkshire stock is up 101% over five years. On a total return basis, the S&P 500 isn’t too far behind, up 96.2% with dividends reinvested.

Second, Buffett’s investments have worked out well. Apple stock has risen, Bank of America has paid plenty of dividends, the railroad keeps printing money, and the list just goes on and on.

So, is Berkshire Hathaway stock still a good value after all of its growth? At today’s prices it trades at:

  • 11.5 times earnings, using the usual way of calculating earnings.
  • 9 times earnings, using Buffett’s preferred definition of earnings (operating earnings).
  • 2.5 times sales.
  • 1.7 times book value.

This is a modestly valued stock, by the standards of U.S. stocks today. If you compare it to the Canadian markets, it’s about average. Speaking of which, let’s explore a Canadian stock that you might like if you’re a Berkshire Hathaway fan.

A similar Canadian stock you could consider

If you’re a Canadian investor who admires Berkshire in principle but would prefer to keep your money in Canadian companies, you have options. Berkshire doesn’t pay a dividend, making it a rare U.S. stock you can hold in a non-RRSP account without a tax penalty. Still, it’s only natural to support the home team.

One Canadian company that resembles Berkshire Hathaway in many ways is Brookfield Corp (TSX:BN). Much like Berkshire, it is a financial holding company that picks investments using a value investing philosophy. Also, it recently got into the insurance business, adding yet another similarity to Berkshire – it’s even a reinsurer, meaning it’s in one of the same insurance sub-sectors as Berkshire.

The big caveat with Brookfield is that it’s a lot riskier than Berkshire is. It has an extremely high amount of total debt, more than five times its shareholders’ equity. The company points out that most of this is property-specific debt, but it still incurs interest expenses. A big rise in interest expenses took a bite out of Brookfield’s profit last year. So, it’s not quite the “safe as milk” proposition that Berkshire is.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Fool contributor Andrew Button has positions in Apple, Bank of America, Berkshire Hathaway, and Brookfield. The Motley Fool recommends Apple, Bank of America, Berkshire Hathaway, Brookfield, and Brookfield Corporation. The Motley Fool has a disclosure policy.

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