BRK.B

Should This Massive Winner Be Added to the "Magnificent Seven"?

The "Magnificent Seven" stocks have been in the headlines quite a bit in 2024, and for good reason. They've been outstanding performers, and they have grown into some massive businesses. But I think there's one company that should be added to this exclusive group.

I won't keep you in suspense. I wholeheartedly believe that Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) should be included in the Magnificent Seven. While it isn't an exciting tech stock, there's a solid case to be made for inclusion in the widely followed group of mega-caps.

So, why should Berkshire be the next Magnificent Seven stock?

It's a Top 7 company by market cap

The first, and perhaps the most obvious, reason Berkshire deserves a spot in the Magnificent Seven is its size. As of this writing, Berkshire has a market cap of about $875 billion, and it has topped $925 billion at a few points in recent weeks. Meanwhile, actual Magnificent Seven component Tesla (NASDAQ: TSLA) is valued at just over $600 billion.

It wasn't too long ago when the Magnificent Seven were the seven most valuable companies in the U.S. stock market, but that is simply not the case anymore. However, if Berkshire were to be added (in place of Tesla), it would be true once again.

Berkshire's performance justifies a spot

I've suggested Berkshire as a Magnificent Seven stock (informally, to colleagues) several times, and one of the most frequent arguments against it has to do with performance. That's usually followed by some stats about Nvidia's (NASDAQ: NVDA) stellar rally or Tesla's long-term performance since its 2010 IPO.

However, just because Berkshire is often thought of as a boring company doesn't mean it is one. Not only is Berkshire handily outperforming the market so far in 2024, but it has beaten the S&P 500 in two of the past three years, even managing positive returns in 2022 when the S&P fell by more than 18%. In fact, the best-performing of the Magnificent Seven stocks dropped by 27% that year.

Looking at long-term returns, there's simply no comparison. Warren Buffett took control of Berkshire in 1964, and the stock produced a 4,384,748% total return through the end of 2023.

Balance sheet strength

In addition to size and a stellar record of either short-term or long-term performance, one thing the Magnificent Seven stocks all have in common is a tremendous balance sheet. I'd argue that Berkshire's would be the best of all.

Not only does Berkshire have very little debt, but the company has $168 billion in cash on hand that it can use to take advantage of opportunities as they arise. It has a reasonable debt load, with most of it owned by Berkshire's energy subsidiaries (which are often required to hold debt by regulators), and one of the best credit ratings in the corporate world.

A "magnificent" stock in all market environments

As a final point, Berkshire would be a strong addition to the Magnificent Seven because it is designed to perform well no matter what the market environment or economy as a whole are doing. In fact, the S&P 500 has produced negative total returns in 13 separate years since 1965, and Berkshire has outperformed the market in 11 of them.

While Berkshire isn't going to deliver the same kinds of returns over the next 60 years, it still has the capability to produce market-beating results due to its financial flexibility, excellent collection of businesses and investments, and top-notch capital allocation team. It's certainly one of the more magnificent companies in the market, and it would be a great complement to the other excellent businesses in the exclusive Magnificent Seven club.

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Matt Frankel has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway, Nvidia, and Tesla. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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