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Don't count out Warren Buffett in Berkshire Hathaway's race against Amazon, other tech giants toward $1 trillion

  • Berkshire Hathaway is up 5.5 percent this year and 28 percent over the last 12 months, beating the S&P 500.
  • Buffett's conglomerate ranks sixth in market value and is the biggest non-tech U.S. company.
  • And a growing economy is seen lifting profits for transportation, energy and consumer product companies: all in Berkshire's orbit.
Warren Buffett, Chairman and CEO of Berkshire Hathaway.
David A. Grogan | CNBC

Old-economy investments are helping Berkshire Hathaway maintain its perch as the biggest non-tech U.S. company.

A surge in the shares over the last year has pushed the Omaha conglomerate's market value above $500 billion, putting it in a race with Amazon, Alphabet and Facebook to be the first company to reach $1 trillion. It ranks sixth, behind those three as well as Apple and Microsoft, as it did at the start of last year.

Sure, the tech giants have dominated the markets in the last year, leading the S&P on a record-setting climb. But Warren Buffett's conglomerate of distinctly old-economy businesses like electric utilities, railroads, insurance companies and furniture and clothing retailers are perhaps the best positioned to benefit from tax cuts and an economic expansion, Berkshire investors and analysts said.

Berkshire could potentially reap a $37 billion windfall from tax reform, according to an analysis last month by Barclays. And a growing economy is seen lifting profits for transportation, energy and consumer product companies: all in Berkshire's orbit.

"All eyes will be on the next earnings report," said David Rolfe, the chief investment officer of St. Louis-based Wedgewood Partners, a money management firm that has been a long-time Berkshire B share holder. Berkshire is scheduled to report fourth quarter and year-end 2017 earnings later this month.

Earlier this week Berkshire announced with Amazon and J. P. Morgan Chase that the three companies would team up to form an independent health care company for their U.S. employees, of which Berkshire has more than 350,000. Buffett has said that healthcare costs, not taxes, are the real issue affecting American business competitiveness.

Berkshire's A shares trade above $310,000, while the B shares are around $209, up 5.5 percent this year and 28 percent in the last 12 months. The S&P 500, by comparison, is up 3.3 percent and 21 percent, respectively.

Since the beginning of last year, Berkshire has added $130.7 billion to its market value, according to FactSet data through Thursday.

While Kraft Heinz, in which Berkshire took a stake in 2015 with the merger of Kraft and Heinz, fell about 8 percent last year and is down another 1 percent this year, the bull market lifted several of Berkshire's stock investments. Nearly all of the 46 stocks in the portfolio are up, most by double-digits. Only four, including Kraft Heinz shares, are down over 12 months.

Apple, which Berkshire started acquiring in 2016, is up 24.7 percent, and Bank of America, in which Berkshire became the largest shareholder last fall, is up 40.6 percent. A long-standing investment, American Express, is up 26 percent, and Moody's shares are up 51.9 percent.

"In a handful of holdings, he's had outsize performance," Rolfe said.

Berkshire has shed or scaled back on some old industrials that used to make up a hefty part of its stock holdings. It exited General Electric in the middle of last year and had been shedding its stake in International Business Machines, admitting to a flawed investment thesis. And Buffett has said he "blew it" by failing to invest in Google parent Alphabet and other tech high-flyers.

But some of Berkshire's more traditional holdings have boosted the portfolio. Airlines, which Buffett once avoided but added in 2016, are one example. American Airlines is up 18 percent, and Southwest is up nearly 11 percent in the last 12 months. Berkshire has 9.8 percent and an 8 percent stake the companies, respectively.

Shares of the materials company USG, in which Berkshire has a 27 percent stake, are up 15.9 percent over the last 12 months. Shares of Walmart are up 56.6 percent in the same period. Berkshire's stake in the retailer is less than 1 percent.

Questions about Berkshire's future management continue to be a major overhang, however, according to Meyer Shields, an analyst from Keefe Bruyette & Woods. Despite the boost Berkshire should get from tax cuts and a growing economy, "at some point in time senior management will change. With someone as unique as Warren Buffett, their eventual departure is an issue."

Last month, 87-year-old Buffett named two vice chairman for the company in an attempt to soothe succession concerns, though his departure is far from immediate. Gregory Abel and Ajit Jain, two of his top business lieutenants, take on the new role as Buffett and long-time associate Charlie Munger continue at the company as chairman and CEO and vice chairman, respectively.