Today's market environment is one of extremes, mainly on the downside. Several growth technology companies and many in other sectors are getting crushed, making new lows on a daily basis.
A few companies are making new all-time highs on a consistent basis. To no one's surprise, one of those companies is Berkshire Hathaway Class B (NYSE: BRK-B), which is the PreMarket Prep Stock of the Day.
Polar Opposite Of The S&P 500 Index: Although the company is one of the biggest components in the index, it has gone in the opposite direction this year. The index ended 2021 near its all-time high at 4,766.18. At its current price of 4,181, the represents a decline of 12.3%.
Berkshire ended 2021 at $299, and at its current price of $330, it has gained 11.4%.
Major Divergence After Ukraine Invasion: After the S&P 500 cash index bottomed at 4,114.65 on Feb. 24, it has attempted to rally on several occasions, but is now roughly 60 points from breaching that low.
On the other hand, Berkshire bottomed on the same day at $299.51 and traded as high as $333.48 earlier in Monday’s session.
Caution Warranted? On Monday’s PreMarket Prep show, co-host Dennis Dick expressed some skepticism and posed the question: “What is Berkshire doing at an all-time high?”
He went on to explain why he is considering shorting the issue.
Dick's reason: Berkshire’s exorbitant stake in Apple Inc. AAPL, which is 45% of the portfolio’s holdings, far outdistancing all the others.
“Apple is not a cheap stock based on its valuation,” he said. “Investors are ignoring the overweighting of Apple in his portfolio. Berkshire should almost track Apple, and while Apple is off 17% from its all-time high, Berkshire is making new all-time highs.”
The co-hosts went on to discuss other Berkshire holdings for a clue as to why it has been holding up so well. Producer Spencer Israel attempted to invalidate Dick’s argument by mentioning other segments of the Berkshire model.
The discussion on Berkshire Hathaway from Monday’s show can be found here:
Berkshire Moving Forward: At this time, the issue has made a new all-time high for the second day in a row and is poised to post a new all-time high if it can close above $327.74.
Regardless of the Apple weighting, the “price doesn’t lie,” and there is no technical justification for shorting the issue.
Any investor long the issue may want to keep a close eye on Apple price action to determine if any further deterioration in its share price will eventually impact the trajectory of Berkshire’s incredible rally.
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