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Should I Avoid Berkshire Hathaway Inc. (BRK.B)?

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  • BRK-B

In this article we will take a look at whether hedge funds think Berkshire Hathaway Inc. (NYSE:BRK-B) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is Berkshire Hathaway Inc. (NYSE:BRK-B) undervalued? Money managers were taking a bearish view. The number of bullish hedge fund bets were cut by 10 in recent months. Berkshire Hathaway Inc. (NYSE:BRK-B) was in 106 hedge funds' portfolios at the end of September. The all time high for this statistic is 116. Our calculations also showed that BRK-B ranked 14th among the 30 most popular stocks among hedge funds (click for Q3 rankings).

Billionaire Paul Tudor Jones' top 10 stock picks
Billionaire Paul Tudor Jones' top 10 stock picks

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind let's take a glance at the fresh hedge fund action surrounding Berkshire Hathaway Inc. (NYSE:BRK-B).

Do Hedge Funds Think BRK-B Is A Good Stock To Buy Now?

At third quarter's end, a total of 106 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BRK-B over the last 25 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is BRK-B A Good Stock To Buy?
Is BRK-B A Good Stock To Buy?

The largest stake in Berkshire Hathaway Inc. (NYSE:BRK.B) was held by Bill & Melinda Gates Foundation Trust, which reported holding $10559.1 million worth of stock at the end of September. It was followed by Gardner Russo & Gardner with a $1252.2 million position. Other investors bullish on the company included Arrowstreet Capital, Citadel Investment Group, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Bill & Melinda Gates Foundation Trust allocated the biggest weight to Berkshire Hathaway Inc. (NYSE:BRK.B), around 45.53% of its 13F portfolio. Punch Card Capital is also relatively very bullish on the stock, dishing out 37.23 percent of its 13F equity portfolio to BRK-B.

Because Berkshire Hathaway Inc. (NYSE:BRK.B) has witnessed a decline in interest from hedge fund managers, we can see that there exists a select few money managers that decided to sell off their full holdings by the end of the third quarter. At the top of the heap, Matthew Stadelman's Diamond Hill Capital said goodbye to the largest investment of the 750 funds followed by Insider Monkey, worth close to $759.5 million in stock. Bo Shan's fund, Gobi Capital, also sold off its stock, about $66.1 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 10 funds by the end of the third quarter.

Let's also examine hedge fund activity in other stocks similar to Berkshire Hathaway Inc. (NYSE:BRK.B). These stocks are Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), NVIDIA Corporation (NASDAQ:NVDA), JPMorgan Chase & Co. (NYSE:JPM), Visa Inc (NYSE:V), Johnson & Johnson (NYSE:JNJ), Alibaba Group Holding Limited (NYSE:BABA), and Walmart Inc. (NYSE:WMT). This group of stocks' market valuations are similar to BRK-B's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TSM,67,9511459,3 NVDA,83,10050216,-3 JPM,101,5635067,-7 V,143,26169435,-19 JNJ,88,6871782,0 BABA,115,10201096,-31 WMT,71,7932562,0 Average,95.4,10910231,-8.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 95.4 hedge funds with bullish positions and the average amount invested in these stocks was $10910 million. That figure was $19464 million in BRK-B's case. Visa Inc (NYSE:V) is the most popular stock in this table. On the other hand Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is the least popular one with only 67 bullish hedge fund positions. Berkshire Hathaway Inc. (NYSE:BRK.B) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BRK-B is 70.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.6% in 2021 through November 30th and beat the market again by 5.6 percentage points. Unfortunately BRK-B wasn't nearly as popular as these 5 stocks and hedge funds that were betting on BRK-B were disappointed as the stock returned 1.4% since the end of September (through 11/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.