Over the past decade, very few stocks have managed to outshine the “Magnificent Seven.” These seven stocks have witnessed their share prices soar by over 400%, with some even experiencing an astronomical surge of nearly 20,000%! Among these elite seven, only one, Tesla, has seen a negative return in the last three years, shedding approximately 16% of its market value.
Noted investors like Jim Cramer are now advocating for Tesla’s ousting from the Magnificent Seven. While the odds are against it being anointed as Tesla’s successor, a mammoth $900 billion business is beginning to glow in the limelight as a prospect for replacement. It may not be as tech-centric as its counterparts, but it’s certainly vying for the coveted title of the next trillion-dollar entity.
A Shift in Power: The Rise of Berkshire Hathaway
The only non-tech member of the Magnificent Seven, Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B), is inching closer to claiming the coveted trillion-dollar crown. With a market cap hovering around $900 billion, a mere 13% upward trajectory in its stock price could catapult it into the trillion-dollar league by the end of the fiscal year.
In stark contrast, Tesla currently stands at a $570 billion market cap. While still substantial, Berkshire fits the bill of the Magnificent Seven much more aptly from a sheer size perspective this time around.
One might question, isn’t Berkshire Hathaway even less tech-oriented compared to Tesla? The answer may surprise you.
Berkshire’s nucleus is an insurance empire fortified by an investment subsidiary. True, it doesn’t exude typical tech vibes, but its main portfolio jewel is none other than a Magnificent Seven alumni: Apple. With a stake valued at around $168 billion, this is nearly 30% of Tesla’s entire market cap.
But Apple isn’t Berkshire’s sole venture into tech. It holds approximately $1.8 billion in Amazon stock, $970 million in Snowflake shares, $2.3 billion in Visa, $1.9 billion in Mastercard, $685 million in HP stock, and $1.3 billion in Nu Holdings shares. The conglomerate even owns $2.4 billion in BYD – an electric vehicle company that directly competes with Tesla in China.
Regrettably, Berkshire falls short in the tech intensity department when weighed against the tech-heavy Magnificent Seven. Though the cumulative value of its tech investments barely breaches $200 billion, it constitutes almost a quarter of Berkshire’s market cap, making it a more tech-oriented stock than many would give it credit for.
The Better Bet: Berkshire vs. Tesla
In a head-to-head comparison between Tesla and Berkshire, the contrast in business models makes sizing up the two a daunting task. Each entity’s revenue streams are poles apart, warranting distinct valuation methodologies.
When pitted against traditional carmakers like Ford, General Motors, and Volkswagen or fellow electric vehicle manufacturers such as Rivian, Tesla’s valuation appears exorbitant. Tesla’s price-to-sales ratio relative to Rivian, for example, paints a picture of extreme premium pricing.
On the other hand, while Berkshire too is caught in the premium pricing web alongside its competitors, the premium is significantly more modest. Trading at a 20% to 50% premium to analogous businesses on a price-to-book basis, Berkshire showcases a more conservative valuation stance. In contrast, Tesla commands nearly a 200% premium over Rivian when scrutinized on a price-to-sales basis.
Despite its strides, Berkshire’s technology orientation may never quite propel it to the Magnificent Seven pedestal due to a lack of tech-centricity. Yet, as uncovered, it holds more substantial tech stakes than common perception may suggest.
Glancing at the numbers post the dramatic price shift, Tesla appears to retain its inflated valuation, while Berkshire Hathaway shares are delineated as reasonably priced considering its robust history of sustained success. While a bid for the Magnificent Seven crown seems far-fetched for now, replacing Tesla in your personal investment roster with Berkshire could prove a prudent move.
Should you invest $1,000 in Berkshire Hathaway right now?
Before diving into Berkshire Hathaway stocks, it’s imperative to ponder this:
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Consider Berkshire Hathaway as a potential addition to your investment mix. After all, it may not attain Tesla’s prestigious Magnificent Seven status promptly, but it’s on a voyager’s quest to carve its niche among the stars as the next trillion-dollar wonder.
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