Inflation rises, but it will not affect this value

The overall trend in stock markets was lower on Wednesday after a disappointing inflation report. The Consumer Price Index (CPI) rose 3.5% in March compared to the previous 12 months. This figure is higher than the 3.2% in February and the 3.4% expected by economists. It is also the highest rate since September 2023.

The markets did not take the news well. There were hopes that the inflation rate would maintain its downward trend, which in turn would prompt the Federal Reserve to lower interest rates sooner rather than later.

However, the March inflation result could indicate that the Fed will not start lowering rates as soon as some had anticipated. All eyes will be on the personal consumption expenditure (PCE) index, a key inflation gauge for the Fed, when it is released on April 26.

Investors have already been through the worst when it comes to inflation, but if they're looking for a stock that has largely resisted inflation to balance things out, look no further than Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B).

The house that Buffett built is solid

Berkshire Hathaway Chairman and CEO Warren Buffett and the late Charlie Munger built the company precisely for times like this: to withstand market shocks like inflation rates at 40-year highs, as they did in 2022.

The conglomerate is largely made up of a $350 billion stock portfolio and the nearly 70 private companies it owns.including brands such as GEICO, Dairy Queen, Benjamin Moore, Duracell, and Business Wire, to name a few.

Among the companies Berkshire owns are several insurance companies, including some it also manages, such as Berkshire Hathaway Specialty Insurance and Berkshire Hathaway GUARD Insurance Companies, along with GEICO and others.

Berkshire Hathaway uses insurance companies' free float to invest in its huge stock portfolio. In addition, it also owns a railway, energy and utility companies, industrial companies, manufacturing companies, retailers, construction and building companies, consumer staples and service companies.

Buffett and his team have carefully selected those companies and those in Berkshire's stock portfolio, adhering to Buffett's philosophy of investing in businesses that are well-managed, good values, have consistent earnings, and are generally robust and stable across a variety of industries that have long histories of success.

This formula has worked perfectly for Berkshire Hathaway over the years and has allowed the company to effectively manage the ups and downs of the markets over the past 50 years.

Let's consider the results. When the market goes down, Berkshire Hathaway usually goes up. That was the case in 2022, when the stock rose 3% in a year in which the S&P 500 fell 19%, mainly due to high inflation and rising interest rates. In 2018, when the market was down 6%, Berkshire Hathaway was up 3%.

Over the past 10 years, Berkshire Hathaway has posted an average annualized return of 12.7%, versus 10.6% for the S&P 500. Going back 20 years, it has generated an annualized return of 9.8%, versus 7.8% of the S&P 500.

Always shopping

One of the reasons Berkshire Hathaway did so well in the most recent bear market was the abundance of companies it owns in sectors that are not prone to wild swings based on economic conditions.. For example, consumer staples, energy, and insurance companies are needed regardless of the environment, so they were not as affected by inflation.

In fact, Berkshire Hathaway's insurance holdings fared better in the bear market, as insurance companies do quite well in periods of high inflation because premiums go up, but people still need insurance.

The proof is in the fact that Berkshire Hathaway posted record operating profits of $30.9 billion in 2022, surpassing that record again in 2023, when it generated $37.4 billion in operating profits. However, gains in its portfolio of privately held companies in 2022 offset unrealized losses in its stock portfolio that year.

Like the companies it invests in, Berkshire Hathaway is built for the long term. It probably won't soar like a tech company in a bull market, but it will produce consistent, reliable returns that investors can count on, in good times and bad.

This year, the stock is up about 13% year-to-date, and is undervalued with a price-to-earnings ratio of 9. Berkshire Hathaway is pretty much always a buy, but it looks especially good right now.