Berkshire Hathaway (BRK-B) Starts Spending Its Cash, but Is 24 Times Earnings Fair?

Berkshire Hathaway (NYSE:BRK-B) will soon report its first quarter that includes Taylor Morrison, the homebuilder it agreed to buy for about $6.8 billion in cash. The deal closed in late July, which puts it in the September quarter. It is the clearest sign yet that Greg Abel, who runs the company after Warren Buffett’s retirement as chief executive, is willing to spend the cash Buffett left behind.

But spending is only half the question. The other half is the price. Berkshire’s stock trades at a steep premium to its sector, and the profit that slipped last quarter came from insurance, the business Berkshire is best known for.

Berkshire owns insurers including GEICO, the BNSF railroad, a large utility business and dozens of manufacturing, service and retail companies. It also invests the premium money it holds, known as float. The earnings are real and still growing, but the stock already prices in most of that, so the spending has to earn a lot to change the answer. The company is one of the 10 No-Brainer Stocks to Buy Now.

Operating Profit Grew While Insurance Slipped

Berkshire’s operating earnings rose to $12.98 billion in the second quarter, up from $11.16 billion a year earlier. Net earnings were far larger, but they included $12.68 billion of investment gains that Berkshire’s own release calls usually meaningless in any single quarter.

The growth came from outside insurance. Manufacturing, service and retailing earned $4.47 billion, up from $3.60 billion, and the railroad and utility businesses also earned more than a year earlier. Insurance went the other way. Underwriting earnings fell to $1.73 billion from $1.99 billion, and insurance investment income fell too.

Spending the Cash Is New for Berkshire

Abel’s choices show most in the cash. Berkshire held $324.9 billion in Treasury bills at the end of June, according to its quarterly filing. It also bought back about $4.5 billion of its own stock in the second quarter. Under its repurchase policy, Berkshire repurchases shares only below the intrinsic value its chief executive estimates, so those purchases show what management thought of the price.

Taylor Morrison adds a different kind of bet. A homebuilder sells into a cyclical market, much like the railroad and the manufacturers that already supply much of Berkshire’s growth, and the deal was agreed to on Abel’s watch. For someone holding the shares, that means owning a cash-rich company that is now deciding, deal by deal, how much of the cushion to keep. If you’re interested in long-term holdings, we recently compiled a report on 10 Best Long-Term Stocks to Buy Now According to Warren Buffett.

Insurance Is the Part to Watch

Insurance earnings fund everything else at Berkshire, and both insurance lines fell last quarter. Treasury bills that Berkshire spends on a deal or a buyback also stop earning interest. A purchase has to earn more than the bills did to leave investment income whole.

That caps the view more than it breaks it. Total operating earnings still rose, so growth elsewhere outweighed the insurance dip, and the float is still large. But growth now has to come from manufacturing, rail, utilities and acquisitions rather than from interest on cash. For investors who want more financial names, our list of 10 Best Financial Stocks to Buy According to Warren Buffett is worth a look.

What the Price Is Betting On

Berkshire’s forward price-to-earnings ratio is 24.08, based on estimated 2026 adjusted earnings. That is far above the sector median of 10.94 and above Berkshire’s own five-year average of 22.43. The adjusted figures leave out the investment gains that swing reported profit.

Analysts expect earnings per share to grow 8.71% in 2026, close to the roughly 8.6% a year that Berkshire’s sales have grown over the past five years. So the price assumes the recent pace holds, not that it speeds up. A multiple above both its sector and its own history needs that steadiness to continue. If you’re looking for cheaper stocks this month, check out 10 Best Undervalued Stocks to Buy in October.

Taylor Morrison and the buybacks show Abel is ready to use Berkshire’s cash, and the premium shows how much investors expect him to get right. Whether 24 times earnings is fair now depends on the September quarter report, due in the coming weeks. If insurance earnings stop falling while Taylor Morrison starts adding to profit, the premium looks easier to defend. If the insurance lines keep slipping, Abel’s spending will have to carry more of the growth than the price already assumes.

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This article is originally published at Insider Monkey.