While it’s not officially a member of The Magnificent Seven, Berkshire Hathaway (NYSE:BRK.B) continues to make the case that it should be included in the exclusive club.
On Aug. 28, Warren Buffett’s holding company hit a $1 trillion market cap, making it only the eighth company to do so and just the second that’s not a tech business. It shouldn’t come as a surprise to anyone who’s followed Berkshire over the years.
Slow and steady wins the race is Buffett’s motto.
It will be hard to keep it out of the Mag 7 for very long. Unlike the seven other businesses, it doesn’t have to rely on nosebleed valuations to add shareholder value. It’s a wonderful reality for the many who’ve held Berkshire Class A or Class B for decades.
The holding company’s investing philosophy is old school and suits its shareholders just fine.
“His approach proved successful. From 1965 to the end of 2022, Berkshire’s stock rose 3,787,464%, far outpacing the S&P 500’s 24,708% gain. If you invested $10,000 in Berkshire 59 years ago, Fortune’s Will Daniel noted, you would have made $378 million by the end of that span,” Fortune wrote on Aug. 28.
Berkshire Hathaway will be part of the Magnificent Seven before too long. Here are three reasons why.
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- Berkshire Hathaway (BRK.B) would be the only non-tech stock in the Magnificent Seven.
- The holding company’s investments are far from tech-free.
- Its cash and diversified holdings would act as a counterbalance to these growth stocks.
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Berkshire Hathaway Owns Plenty of Tech
I’ve done numerous online searches to find the definition of Magnificent Seven stocks. While tech is often mentioned as an essential ingredient in selecting these stocks, nowhere could I find one that says you must be a tech stock for inclusion.
That’s good news for Berkshire shareholders.
Here’s one from ICICI Bank (NYSE:IBN), India’s second-largest bank.
“The term ‘Magnificent 7′ refers to a select group of large-cap stocks that are widely regarded as solid long-term investments due to their stability, growth potential, and market dominance. These stocks are often considered cornerstone holdings in many investment portfolios due to their historical performance and strong fundamentals,” states the bank’s online investing site.
It goes on to say that technology and AI are responsible for these seven stocks’ dominance.
So, let’s suppose that technology is a significant factor in inclusion. Berkshire has more technology investments than one might realize.
First, although it has sold 56% of its Apple (NASDAQ:AAPL) holdings in the first two quarters of 2024—the sale of 510 million shares of AAPL stock in the first half of the year has reduced the size of its equity portfolio while increasing its cash holdings to a record $278 billion—Berkshire still holds 400 million shares worth $91.4 billion, accounting for 28.8% of its $317.4 billion equity portfolio.
If its remaining Apple holdings were an S&P 500 company, it would be the 111th largest by market cap. Of the 81 tech companies in the index, it would be the 27th largest.
It’s got plenty of tech.
It’s Also Got Plenty of Cash
Thanks to the Apple stock sales, Berkshire finished the second quarter with net cash of $153.3 billion, or 13.8% of its $1.11 trillion in total assets.
Here’s how the Magnificent Seven stack up against it.
| Company | Net Cash Debt | Total
Assets |
Net Cash (Debt) / Total Assets |
| Nvidia (NASDAQ:NVDA) | $24.8B | $85.23B | 29.1% |
| Alphabet (NASDAQ:GOOGL) | $72.0B | $414.77B | 17.4% |
| Tesla (NASDAQ:TSLA) | $18.2B | $112.83B | 16.1% |
| Apple | $51.7B | $331.61B | 15.6% |
| Meta Platforms (NASDAQ:META) | $20.1B | $230.24B | 8.7% |
| Microsoft (NYSE:MSFT) | -$22.3B | $512.16B | -4.4% |
| Amazon (NASDAQ:AMZN) | -68.8B | $554.82B | -12.4% |
Source: S&P Global Market Intelligence
If Berkshire was one of the “Magnificent 8”, it would have the fifth-highest net cash as a percentage of its total assets, ahead of META, MSFT, and AMZN.
Let’s be clear: I’m not suggesting that having this much cash on your balance sheet for an extended time is the best idea. Still, Berkshire Hathaway has proven that it is handy when negotiating preferred share investments, something Buffett has turned into a science over the years.
When the company bought $10 billion in Occidental Petroleum (NYSE:OXY) preferred shares in 2019—they paid dividends of 8% plus came with warrants to buy 80 million shares at $62.50 —it had net cash of $13.4 billion. It’s now 10 times that amount.
Buffett has built an impenetrable fortress. You can’t put a monetary value on that.
It Would Provide Diversification
Adding Berkshire to the Magnificent Seven would make the Magnificent Seven ETF (NASDAQ:MAGS) so much more attractive — it’s an equal-weighted ETF that buys all seven of the stocks and is rebalanced quarterly — because it would provide a counterbalance to all these hyper-growth oriented tech stocks.
As investors know, if the world were to decide that AI isn’t “all that and a bag of chips,” the market cap correction to the entire index would be exceptionally harsh. Will it happen? Probably not. However, it’s not entirely out of the realm of possibility.
Berkshire Hathaway is effectively a no-cost mutual fund with diversification that’s second to none.
Morningstar Vice President of Research, John Rekenthaler, recently wrote a story about the company entitled, Berkshire Hathaway: A Mutual Fund in Disguise? In it, Rekenthaler analyzes Berkshire as if it were a mutual fund.
With an assist from his Morningstar colleague, Greggory Warren, he concludes that investors value its privately held businesses at $577 billion, which is calculated by subtracting its net cash ($114 billion) and equities portfolio ($267 billion) from its Aug. 20 market cap of $958 billion.
As he points out, its private businesses have P/E ratios considerably less than 28.0x, the average of the 100 largest U.S. stocks. As a result, if it were a mutual fund, its category would likely be either large or mid-cap value.
There aren’t too many of those in the Magnificent Seven.
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