Prediction: This Is What Will Happen With Berkshire Hathaway Stock in the Next 12 Months
Key Points
Warren Buffett stepping down as chairman at Berkshire Hathaway creates uncertainty around the stock, which may result in it trading at a discount.
The company's increased exposure to tech stocks could also make it vulnerable if there's a pullback in the sector.
Warren Buffett has stepped down as chairman of Berkshire Hathaway (NYSE:BRKA)(NYSE:BRKB). While he was no longer the CEO of the company as of the start of this year, this move may be an even more significant development, as it suggests the prominent investor will have even less involvement in the business. Perhaps he may not be involved at all, especially with news that his son Howard would be taking over as chairman.
The news comes at a time when investors are torn about whether or not Berkshire's stock is still a good buy. It's been floundering this year, still trading at levels it was at back in January.
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I predict that in 12 months, the stock could fall by around 20%, with the class B shares trading at around $400. Here's why.
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The stock may look riskier to investors
With Warren Buffett no longer an integral part of Berkshire's business decisions, I believe some investors will inevitably sell the stock. It's a situation that arises anytime there are questions about leadership. Buffett has still been involved with the operations at Berkshire since new CEO Greg Abel took over at the start of this year, but that's going to be less and less the case moving forward. As a result, investors may not be as willing to value the business as highly; currently, its market cap is just north of $1 trillion.
Another factor that I think will work against the stock is its increased exposure to tech stocks. Just short of one-third of Berkshire's portfolio is tied up in Apple and Alphabet. Those are two stocks that can be highly vulnerable if there's a sell-off in the tech sector, which may happen, especially given the recent debate about whether to slow down the development of artificial intelligence (AI) models. A more bearish outlook on tech could result in investors also reducing their exposure to Berkshire, whose portfolio may not look as appealing to risk-averse investors anymore.
Berkshire's stock may still do well in the long run, but investors should brace for near-term headwinds
I don't think Berkshire's stock is in deep trouble, but I believe it'll end up trading at more of a discount in the near term, at least until the market has confidence in the company's performance without Warren Buffett being in the mix anymore.
Ultimately, however, given that it's still following Buffett's investing principles, Berkshire will likely remain a solid long-term investment. But in the short term, I think it'll encounter some challenges and experience a sharp decline in value.
David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, and Berkshire Hathaway. The Motley Fool has a disclosure policy.