Reuters
- Warren Buffett can navigate whatever the US economy throws at him, investor Steven Check says.
- Berkshire Hathaway can rake in tidy returns from Treasuries, or snag deals in a recession, he says.
- Check isn't sure if the US consumer is tapping out or just spending money outside of Berkshire.
Whether the US economy keeps roaring and interest rates stay high, or a recession strikes and asset prices tumble, Warren Buffett's Berkshire Hathaway is well placed to profit, one longtime shareholder has said.
Buffett's company is "purpose-built to withstand economic shocks," Steven Check told Insider this week.
"Berkshire has some natural hedges against different macroeconomic environments," Check Capital Management's founder and chief investor said. "That's one of the advantages of selling everything from hamburgers to insurance and airplane parts to candy."
Check underscored that Berkshire's cash pile swelled to a near-record $147 billion in the second quarter. He estimated the conglomerate could rake in close to $8 billion annually from short-dated Treasuries, as higher interest rates have boosted yields.
Moreover, Buffett and his team have plenty of ammunition to make big-ticket acquisitions and scoop up bargain stocks if valuations drop, he said.
"Given the firm's fortress balance sheet and consistent free cashflow, it's a buyer of discounted assets in times of trouble," he said. "We don't see that changing in the next recession, whenever it comes."
Check first invested in Berkshire in the 1990s, and counted it as the biggest position in his firm's $1.1 billion stock portfolio (excluding options) at the end of March, regulatory filings show. It owned about $440 million of stock in Buffett's company, plus bullish call options on a further 3.7 million shares.
Berkshire reported lower revenues and earnings across many of its consumer-facing businesses last quarter. Given the wide scale and scope of Berkshire's subsidiaries, that could indicate a broader slump in US consumer spending. However, Check questioned that argument.
The veteran investor noted that Berkshire's hardest-hit business was Forest River. While steeper borrowing costs weighed on sales of recreational vehicles, demand might also be normalizing after skyrocketing during the pandemic, he said.
Check also suggested that weakness in Berkshire's footwear and apparel businesses could reflect losses of market share to competitors, not an overall softening of demand. Moreover, he noted that Berkshire's sales of new cars were strong last quarter, but its sales of home furnishings were down, painting a mixed picture of the current health of American consumers.
"It's challenging to discern if this is because consumers don't have discretionary dollars to spend, or if they just spent them on other categories," he said.
Regardless, Check remains bullish on Berkshire given its financial strength, diversity of businesses, and Buffett's penchant for pouncing during tough times and striking lucrative deals.