3 Ways To Invest With Warren Buffett, Berkshire Hathaway's 'Oracle Of Omaha'

Shareholders in well-known and much followed investor Warren Buffett’s conglomerate, Berkshire Hathaway (NYSE:BRKb) have seen the value of their investment go up roughly 33% over the past 52 weeks, and 18% year-to-date (YTD).

By comparison, Apple (NASDAQ:AAPL), the largest holding in the Berkshire Hathaway portfolio, is down 4.2% so far in 2022, but still up 27.9% in the past year.

On Mar. 29, BRKb shares went over $362, hitting a record high. The stock’s 52-week range has been $261.91–$362.10, while the market capitalization (cap) stands at $779.8 billion.

Investors wishing to get more information on the Omaha, Nebraska headquartered company's portfolio can study the latest said :

“Many people perceive Berkshire as a large and somewhat strange collection of financial assets. 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. That supremacy has never been our goal. It has, however, become a fact.”

Prior to the release of the Q4 results, BRKb shares were trading around $317. But on Apr. 8, they closed at $353.10. This means BRKb stock has gained around 11% since the earnings announcement.

What To Expect From BRKb Stock/h2

Among analysts valuation models , including P/E or P/S multiples or terminal values, the average fair value for BRKb stock on InvestingPro stands at $496.43.

Source: InvestingPro

In other words, fundamental valuation suggests shares could increase about 40%.

We can also look at BRKb’s financial health as determined by ranking more than 100 factors against peers in the financials sector.

For instance, in terms of cash flow and growth, it scores 3 out of 5. Its profit health as well as overall score of 4 points is a great performance ranking.

At present, BRKb stock’s P/E, P/B and P/S ratios are 8.7x, 1.5x and 2.8x. Comparable metrics for the sector stand at 8.2x, 1.0x and 2.6x.

Our expectation is for BRKb stock to trade in wide range between $340 and $360 in the coming weeks. Afterwards, shares could potentially start a new leg up.

Adding BRKb Stock To Portfolios/h2

Berkshire Hathaway bulls who are not concerned about short-term volatility could consider investing now. Their target price would be $496.43, as suggested by valuation models.

Alternatively, investors could consider buying an exchange-traded fund (ETF) that has BRKb stock as a holding. Examples include:

• Financial Select Sector SPDR® Fund (NYSE:XLF)
• Davis Select US Equity (NYSE:DUSA)
• iShares US Financials ETF (NYSE:IYF)
• Absolute Core Strategy (NYSE:ABEQ)
• Invesco S&P 500® Momentum ETF (NYSE:SPMO)
• Blackrock Future US Themes ETF (NYSE:BTHM)

Finally, investors who expect Berkshire Hathaway stock to see new highs in the weeks ahead could consider setting up a bull call spread.

Most option strategies are not suitable for all retail investors. Therefore, the following discussion on Berkshire Hathaway stock is offered for educational purposes and not as an actual strategy to be followed by the average retail investor.

Bull Call Spread On BRKb Stock/h2

Price At Time Of Writing: $353.10

In a bull call spread, a trader has a long call with a lower strike price and a short call with a higher strike price. Both legs of the trade have the same underlying stock (i.e., BRKb) and the same expiration date.

The trader wants Berkshire Hathaway stock to increase in price. In a bull call spread, both the potential profit and the potential loss levels are limited. The trade is established for a net cost (or net debit), which represents the maximum loss.

Today’s bull call spread trade involves buying the Sept. 16 expiry 360 strike call for $16.25 and selling the 370 strike call for $12.10.

Buying this call spread costs the investor around $4.15, or $415 per contract, which is also the maximum risk for this trade.

We should note that the trader could easily lose this amount if the position is held to expiry and both legs expire worthless, i.e., if the BRKb stock price at expiration is below the strike price of the long call (or $360.00 in our example).

To calculate the maximum potential gain, we can subtract the premium paid from the spread between the two strikes, and multiply the result by 100. In other words: ($10 – $4.15) x 100 = $585.

The trader will realize this maximum profit if the BRKb stock price is at or above the strike price of the short call (higher strike) at expiration (or $370 in our example).

Bottom Line

Berkshire Hathaway has had an impressive run in the past 12 months. Yet, despite potential volatility in the coming weeks, we expect the shares to perform well in future quarters as well.

Thus, buy-and-hold investors could consider investing soon. Alternatively, experienced traders could also set up an options trade to benefit from a potential run-up in the price of BRKb stock.