Josh Brown: Warren Buffett’s Berkshire Hathaway is nearing 'the mother of all re-ratings'

Published Wed, Sep 16 20205:24 PM EDTUpdated Thu, Sep 17 20205:07 AM EDT

Kevin Stankiewicz @in/kevinstankiewicz @kevin_stank

(This story is for CNBC Pro subscribers only.) Money manager Josh Brown told CNBC he believes the stock of Warren Buffett's Berkshire Hathaway could be nearing a significant move to the upside, and he pointed to the conglomerate's recent stake in the hot IPO of Snowflake as an indicator of why. "I think that Berkshire Hathaway is on the verge of undergoing the mother of all re-ratings," Brown said Wednesday on "Closing Bell." "They started buying Amazon last year. Now they're involved in pre-IPO venture-backed technology companies," Brown said, referring to Snowflake, a cloud company that began trading Wednesday on the New York Stock Exchange. Brown, CEO of Ritholtz Wealth Management, a New York City-based investment advisory firm, emphasized that he owns Berkshire's Class B shares, so "I'm biased... but I think this is important." Last week, it was revealed that Berkshire agreed to purchase $250 million of Snowflake's stock at the IPO price, which was set at $120 per share. Berkshire also scooped up an additional 4.04 million shares from current stockholder at the debut price. Although Snowflake surged out of the gate Wednesday, delivering strong returns to Berkshire, Brown said his re-rating thesis is not about the one-day gains. Instead, he said it is about the signal the investment sends regarding Berkshire's potential direction moving forward. In addition to Amazon and Snowflake, Brown noted Berkshire has been invested in other technology companies such as Visa and Mastercard . Buffett's firm also has a major position in Apple . "Berkshire Hathaway at a $500 billion market cap, half of that market cap is made up of the Apple stake and cash," said Brown. "It's just this extraordinary situation where you have a company that everyone now expects to keep making these clumsy, ridiculous 20th century investments like Wells Fargo and Kraft Heinz and the stupid airlines. They're not doing that anymore." "They are becoming participants in the 21st century and nobody is valuing this company as though they could seriously play there. They have the cash. They have the clout," Brown continued. Buffett, who is widely regarded as one of the greatest investors of all time, counts on lieutenants such as Todd Combs and Ted Weschler for some investments, particularly those in the technology sector. Brown referenced their potential role in carving out a stake in in Snowflake, which provides enterprises new ways to store and access data. "Ted and Todd understand that a business like Snowflake doesn't look very different from some of the best investments Buffett ever made. It's this kind of toll booth, gateway business," Brown said. Class B shares of Berkshire closed Wednesday's session at $219.59. The stock posted a 52-week high of $231.61 in mid-January, before the advent of the coronavirus pandemic caused a significant sell-off in equity markets. Berkshire hit a virus-era bottom of $159.50 on March 23, rising 37% since. "Berkshire should be $250 minimum, if not $300 at some point, because they're going to play in some of the most important markets in the new century and they've got new investment stewards doing that work with Buffett's blessing," he said. The stock would need to gain about 14% to reach $250 per share and about 37% to hit the $300 mark. Brown said he is not arguing for investors to re-rate Berkshire, which currently as a price-to-earnings ratio around 24, "like a tech incubator and give it a tech multiple." "But c'mon. This stock is being valued like a utility with no dividend or like it's just an insurance company. Apple is paying Berkshire Hathaway $800 million a year in dividends . I don't even think most people realize that," Brown said. "And so if they're going to a participate in the 21st century, and recent indications tell me they might want to, that is going to be in my opinion a big sentiment shift in the way people value this company." Brown stressed the re-rating thesis he laid out may not transpire, but he said, "I think it would be appropriate given how much financial flexibility Berkshire has and how interested it appears to be in businesses other than old leather shoes and cans of salt water."

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(This story is for CNBC Pro subscribers only.)

Money manager Josh Brown told CNBC he believes the stock of Warren Buffett's Berkshire Hathaway could be nearing a significant move to the upside, and he pointed to the conglomerate's recent stake in the hot IPO of Snowflake as an indicator of why.

"I think that Berkshire Hathaway is on the verge of undergoing the mother of all re-ratings," Brown said Wednesday on "Closing Bell." "They started buying Amazon last year. Now they're involved in pre-IPO venture-backed technology companies," Brown said, referring to Snowflake, a cloud company that began trading Wednesday on the New York Stock Exchange.