No. of Recommendations: 2
" Capital Allocation
As discussed earlier, Berkshire's capital allocation policies are not really changing. The company continues to be a net seller of equities. In Q1, Berkshire sold $24 billion of stocks but also bought $16 billion. This is close to balanced if you factor in the $9 billion spent on OxyChem in the quarter. Berkshire almost never discusses stock trades at annual meetings, so investors will have to wait for the 13-F on May 15 to get a clearer picture. There is some speculation that the sells might include some Todd Combs picks after Todd left the company. Still, the $16 billion could include many interesting buys. The Tokio Marine purchase will be left off, however, along with other non-US stocks, as the filing covers US stocks only.
Berkshire had $10.4 billion of operating cash flow in the quarter and $5 billion of capex, for free cash flow of $5.4 billion. That is a decrease from $6.6 billion in Q1 2025. The company resumed stock buybacks in March but spent only $235 million, paying an average of $487.92 per B share. Based on the share count on the front page of the 10-Q, Berkshire did not buy any stock between March 31 and April 14, even though the price was lower than the March buyback level.
Berkshire ended the quarter with $373.5 billion in cash and T-bills, net of payables for T-bills purchased but not settled. That is up from $369 billion at the end of Q4, a smaller build than we have seen in recent quarters.
Valuation
My regular sum-of-the-parts valuation model is presented below. The overall earnings power of the non-insurance businesses is little changed from last quarter, but peer multiples are down for each segment except BNSF. The value of the investment holdings is almost identical to last quarter. The decline in the value of the stock portfolio is offset by the increase in cash and the value of Occidental Petroleum Corporation (OXY), which is accounted for separately on the balance sheet along with The Kraft Heinz Company (KHC). The value of the insurance business is lower with small declines in investment income, underwriting, and peer multiples.
Putting it all together, the intrinsic value for Berkshire comes out to $510.58 per B share. That is 7.9% above where the stock closed on the day before earnings, a slightly wider margin of safety than last quarter's estimate."
