Berkshire’s Infrastructure Might With Plan to Grow
■ Firm now holds $158
billion of domestic infrastructure assets
■ Businesses are a good fit
for a firm ‘gushing’ cash: Armstrong
Photographer: Andrew Harrer/Bloomberg
February 27, 2022, 10:00 AM EST
Warren Buffett’s Berkshire Hathaway
Inc. has amassed $158 billion of domestic infrastructure assets, a feat the
billionaire investor said underscored the conglomerate’s stature as an
industrial powerhouse which he only expects to grow.
The vast collection of assets is the
biggest by any U.S. company, Buffett said in his annual
letter released on Saturday. The pool highlights the shifts that
Berkshire has taken from a company rooted in insurance, retail and stock picks
to an operation with a mammoth-sized railroad and sprawling energy empire.
“Many people perceive Berkshire as a
large and somewhat strange collection of financial assets,” Buffett said. “In
truth, Berkshire owns and operates more U.S.-based infrastructure assets --
classified on our balance sheet as property, plant and equipment -- than are
owned and operated by any other American corporation.”
The $700 billion conglomerate has
seen expansion in its railroad, BNSF, and energy operations gather momentum in
recent years. Buffett called BNSF the “number one artery of American commerce”
and praised the energy operations for the record $4 billion of earnings last
year. After growth in its domestic infrastructure assets in 2021, Buffett
expects the figure will continue to rise, with Berkshire always building, he
“We think about Berkshire as kind of
a tollbooth on the American economy,” Jim Shanahan, an analyst at Edward Jones,
said in a phone interview. “There’s broad exposure here across the U.S.
In recent years, Berkshire has been
struggling with a high-class problem of too much cash without enough attractive
opportunities to spend it on, leaving the firm with nearly $147 billion on hand
at the end of the year. The hoard is just shy of the record set three months
Berkshire’s shift to more stable,
industrial behemoths makes sense given how much money the company can put to use
and still remain, by Buffett’s own words, “financially impregnable.” The
businesses are considered among Berkshire’s “Big Four” alongside the insurance
operations and its stake in Apple
Inc. They’re a good fit for Berkshire at this stage, according to
shareholder James Armstrong.
“If you are in a position where your
company, Berkshire Hathaway, is gushing cash, an electric power business is a
good fit because you then can deploy your cash into a business that is
enormous,” said Armstrong, whose Henry H. Armstrong Associates oversees around
$1 billion including investments in Berkshire shares. “It’s a regulated
business, so you’re never going to make super high returns, but you are pretty
likely to make very good returns because the regulators want the electric power
grid to be well maintained.”
Here’s other key takeaways from
Buffett’s two investing deputies,
Todd Combs and Ted Weschler, often remain behind-the-scenes, helping to
orchestrate the deployment of Berkshire’s billions into different stock picks.
Buffett revealed in the letter that the pair now oversees a total $34 billion of
investments, some of which rank among Berkshire’s top 15 largest stock bets.
The duo’s influence can be seen in
some of Berkshire’s recent bets, including the purchase of
Activision Blizzard Inc. stock before Microsoft Corp. agreed to buy the game
maker. Still, the $34 billion that the pair manages would account for just under
10% of the company’s total $350 billion stock portfolio. Both managers should be
given more capital, according to Edward Jones’s Shanahan.
“There’s evidence of their influence
more broadly in the portfolio, but there’s been a nice change here in the
composition of the portfolio,” Shanahan said. “Especially given that the
operating companies are more old economy, they’ve brought more of a new economy
angle to the portfolio, which I think creates a more balanced franchise.”
Buffett conceded there was “little
that excites” the investor and his longtime business partner Charlie Munger on
the stock-buying front these days. That’s led Buffett to lean even more into
stock repurchases as a key way to deploy capital. Berkshire spent $27.1 billion
on buybacks last year, the most ever, and continued to snap up $1.2 billion of
its shares from year-end to Feb. 23.
“They’re still at what we think to
be such a comfortable discount in valuation from intrinsic value per share that
we still believe every penny spent is accretive to the remaining shareholders,”
Tom Russo, who oversees $9 billion including investments in Berkshire shares at
Gardner Russo & Quinn LLC, said in a phone interview.
But Russo acknowledged that
Berkshire can’t take that pledge to the extreme “because if you depleted
yourself of all resources and a big elephant comes tip-toeing by, you won’t be
able to take advantage of the thing you really want to do which is generate more
Buffett granted a portion of
Berkshire’s report to his likely successor, Greg Abel, in a rare move. Abel
detailed how Berkshire is approaching environmental issues such as greenhouse
gas emissions in some of its biggest businesses, including the railroad and
Berkshire has been pressured in
recent years to address environmental issues given the scale of those
businesses, and the topic has become increasingly important for investors,
according to CFRA Research’s Cathy Seifert.
“Berkshire is a laggard here and I
think this is a much-needed catchup,” said Seifert. “I’m glad to see that it’s
Greg and that it’s somebody who is going to be stepping into a role where this
is going to be required. It’s no longer sort of a nice-to-have.”
Berkshire came up short last year
with no big deals to supercharge its growth. Buffett was blunt in saying that
“there was little action” in 2021 at Berkshire that would’ve been considered new
or interesting. The firm was even a net seller of common stocks in the fourth
quarter, the fifth quarter in a row that the company has sold more stocks than
it has bought.
Still, Berkshire’s operating
businesses kept chugging along, with operating profit in the fourth quarter
climbing to its second-highest level in data going back to 2010. And Buffett has
lots of funds to work with if a deal comes his way.
“What a cash machine Berkshire has
become,” Armstrong said.
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