It is now official; Warren Buffett’s Berkshire Hathaway (NYSE: BRK.B) has become the house of cash. The latest earnings report indicates that Uncle Warren and his team accumulated an astronomical amount of cash.
Berkshire reported $109.30 billion in cash and short-term investments on September 30, 2017, ycharts data indicates. That number was a $9.55 billion increase from June 2017, when Berkshire Hathaway (NYSE: BRK.A) had $99.75 billion in the bank.
It also means that Berkshire’s cash grew by $24.47 billion during the 12 months between September 30, 2016, and the same date in 2017. Berkshire Hathaway reported $84.83 billion in cash and short-term investments in September 2016.
This means Berkshire’s bank account grew by $9.55 billion in three months and $24.47 in a year. That stash of cash gives Buffett incredible power and leverage over the markets.
The Amount of America Warren Buffett can buy is absolutely incredible
The potential of this is absolutely staggering. Just a few of the things Uncle Warren can do with all that cash include:
Buy America’s second largest grocer; Kroger (NYSE: KR), outright and still have $75.56 billion left in the bank. That’s amazing because Kroger reported revenues of $118.05 billion on 31 July 2017. Kroger had an enterprise value of $32.74 billion on November 10, 2017.
Buy five of the highest-profile tech companies around; Twitter (NYSE: TWTR), Snap (NYSE: SNAP), GrubHub (NYSE: GRUB), Square (NYSE: SQ) and Yelp (NYSE: YELP) at once and still have $62.453 billion in the bank. Here are those companies enterprise values from 10 November 2017:
- Twitter: $12.13 billion.
- Snap: $12.52 billion.
- GrubHub: $4.99 billion.
- Square: $13.99 billion.
- Yelp: $3.217 billion.
The combined value of those companies was $46.847 billion on November 10, 2017. That means Buffett is in a position to grab control of a large portion of the social media, fin-tech and app sectors fairly quickly if he wishes.
This is just the tip of the iceberg because we are only looking at publicly traded companies here. There are also vast numbers of privately-held tech companies out there which include the struggling Uber and Lyft.
Would Berkshire Hathaway buy Nordstrom?
Beyond that, there are struggling but profitable segments of retail out there. An interesting target for Berkshire in retail is Nordstrom (NYSE: JWN); which generated revenues of $15.00 billion on July 31 but had an enterprise value of $8.19 billion on 8 November 2017.
Since the Nordstrom family has had a hard time finding help to take their company private a Berkshire acquisition would be a good alternative. Nordstrom fits Buffett’s classic acquisition profile it’s a good company; that’s well-managed and makes money, but is undervalued by the market.
Nordstrom also has some intriguing possibilities for the future including its concept store Nordstrom Local. Both that and Nordstrom’s traditional department stores would be great places to display products from Berkshire subsidiaries such as Nebraska Furniture Mart, Borsheims Fine Jewelry, Helzberg Diamonds, Brooks, and See’s Candies. Since Nordstrom is already allowing companies like Tesla (NASDAQ: TSLA) to display products in its stores joining a larger organization like Berkshire seems a natural progression.
The Cash keeps rolling in at Berkshire Hathaway
Berkshire’s power is only going to grow because its cash keeps rolling in. Some of the extraordinary cash figures at Berkshire Hathaway include:
- A free cash flow of $7.608 billion on September 30, 2017.
- $44.94 billion in cash from operations on September 30, 2017. This figure was a $12.51 billion increase over the $32.43 billion in cash from operations reported in September 2017.
- A net income of $18.68 billion on September 30, 2017. This was actually considerably from last year; it was $23.27 billion in September 2016. That means it fell by $4.59 billion in 12 months.
The value at Berkshire Hathaway is also vast, it reported $681.55 billion in assets on September 30, 2017. That was in addition to a market capitalization of $453.27 billion and an enterprise value of $450.64 billion reported on 10 November 2017.
Why Isn’t Berkshire Hathaway spending more of its Money?
This also raises an intriguing question: why isn’t Warren Buffett spending more of his money? This is a fair question because of the threat inflation poses to both his cash and enterprise value.
The United States had an inflation rate of 2.2% for the 12 months that ended in September 2017. That means Berkshire Hathaway might lose around $2.4 billion to inflation over the next year by keeping its money in the bank.
Despite that, there are several good reasons why Buffett and his advisors are keeping the money in the bank. They include:
- The price of stocks is ridiculously high these days. Questionable companies such as Dollar General (NYSE: DG) and Tesla Motors (NASDAQ: TSLA) are trading at high prices. There simply are few bargains out there in the market.
- Buffett thinks that a market correction is imminent so he is saving for a shopping spree. He picked up some real bargains after the big crash in 2007 and 2008 including the Burlington Northern Santa Fe railroad.
- Berkshire Hathaway can make more money investing money with an internal investment such as the expansion of Nebraska Furniture Mart; or increased advertising at GEICO, than by buying outside investments. One advantage to this is it can finance some of those moves with cheap credit.
- Berkshire can make more money buying debt issued by companies like Amazon than it can from acquisitions or stock purchases.
- Buffett is trying to keep Berkshire’s value high to offset market losses that would probably occur after his death.
- There’s a major corporate acquisition Berkshire plans to make soon. My take is this would be another railroad; probably one with an East Coast port connection. Another possibility is the Kansas City Southern (NYSE: KSU) which has lines to Mexico and the Pacific Coast.
All of these options show why Berkshire Hathaway is such a great company. It has the enviable problem of having too much money.
At the end of the day, all this proves that Berkshire Hathaway is still one of the best value investments around. It is still the gold standard in value investments, and a company everybody must study to see how things are done right.