Warren Buffett's Berkshire Hathaway (NYSE:BRK.A, BRK.B) stock has been struggling in 2008 as it underperforms the major benchmarks. Could this be the time to take advantage of the weakness and buy into Berkshire at a discount? (Learn more in What Is Warren Buffett's Investing Style? and Benchmark Your Returns With Indexes.)

What is Berkshire Hathaway?
In essence, Berkshire is Warren Buffett's personal portfolio that is composed of companies in a number of industries. Buffett owns approximately one-third of Berkshire and thus is annually listed as one of the richest people in the world. There are two classes of shares traded on the NYSE, the A-class shares trade around $115,000 per share and average less than 10 shares traded per day. The B-class shares trade at approximately 1/30th of the A shares and are currently around $3,800 per share and trade on average nearly 25,000 shares per day.

The companies that make up Berkshire include everything from an ice cream shop (Dairy Queen) to an Israeli maker of metal-cutting tools and everything in between. But the reason the stock has underperformed this year, and is down nearly 20%, is the exposure it has to insurance companies. They include National Indemnity, GEICO, and General Re. With the issues in the financial sector, it has made its way over to the insurance industry and Berkshire has paid by lagging the market this year.

Time to Nibble
Even though Buffett is no longer a spring chicken, he still has the ability to make profitable moves for Berkshire, especially in down markets. During the tech crash of 2000 Berkshire took a hit, but was able to rally back with a vengeance and by early 2004 was back at an all-time high. What has made Buffett one of the greatest investors of all-time has been his ability to find value in bear markets and use the weakness to accumulate solid long-term holdings. In the current market environment there are more than a few opportunities both here and overseas and if anyone is able to take advantage of them it is Buffett.

From a technical perspective, BRK.B stock is not far from very important long-term support at the $3,600 area and from a reward-to-risk view, now is the time to buy. Keep in mind, if the support I mentioned is broken, the stock should be sold with a minimal loss. (Find out how you can combine the best of both strategies to better understand the markets in Blending Technical And Fundamental Analysis.)

Within Berkshire
A few of the stocks that Buffett owns a stake in include the following.

  • Kraft Foods (NYSE:KFT) - The major food company has held up well along with the other consumer staples as the U.S. and international stock markets fall. It has managed to pass along rising food cost, and so Kraft is an attractive play if inflation continues to increase.

  • Burlington Northern Santa Fe (NYSE:BNI) - Buffett can say he was in the railroad sector before the big rally earlier this year. BNI and its peers have had a great run not only in 2008, but for the last five years as the demand for commodities has required movement by rail. I feel this is a solid stock in a sector that has the ability to continue outperforming.

  • Coca-Cola (NYSE:KO) - Of the large-cap stocks that are considered consumer staples, Coke has been a laggard in 2008 after two very strong years. From a valuation perspective it may be time to once again look at Coke after its pullback this year. This is the typical Buffett stock because it is a long-term story that has consistent earnings and should not have a big downside.

Bottom Line
In the end, you probably won't get huge gains out of Berkshire stock, but going forward the downside should be limited. And there is no doubt in my mind that Buffett's working overtime looking for bargains in the market.

If you prefer to coattail Buffett's investments, check out Build A Baby Berkshire.

Related Articles
  1. Economics

    How Warren Buffet Made Berkshire Hathaway A Winner

    Berkshire Fine Spinning Associated and Hathaway Manufacturing Company merged in 1955 to form Berkshire Hathaway.
  2. Investing News

    What Does the Fire Monkey Mean for Your Portfolio?

    The Chinese new year this year corresponds to the monkey, a quick-witted, playful, tricky figure that means well but has a penchant for causing trouble.
  3. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  4. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  5. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  6. Retirement

    Warren Buffett's Investment Lessons for Retirees

    For those in retirement, Warren Buffett's clear, timeless advice on investing is worth a look.
  7. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  8. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  9. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  10. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
Trading Center