NEW YORK ( TheStreet) -- Even as Berkshire Hathaway (BRK.B - Get Report) tests new record share-price highs, the Warren Buffett-run company remains poised to benefit from an economic recovery that could lift the value of the conglomerate's investments spread across stocks, energy, transportation and housing, among others.
Warren Buffett and his investors have plenty to celebrate heading into the firm's May 4 annual shareholder meeting, given Berkshire Hathaway's share price gains that are solidly beating the S&P 500 Index over year-to-date, one-year and five-year periods.
Still, as Buffett welcomes investors to the shareholder meeting, the "Oracle of Omaha" isn't likely to rest on his laurels.In Berkshire's 2012 annual shareholder letter,Buffett lamented an underperformance of the firm's book value growth relative the S&P 500, and even outlined a path towards a dividend. Buffett fears Berkshire's five-year book value growth rate may underperform the S&P 500 for the first time ever. In 2012, Berkshire's book value per share increased 14.4%, behind the S&P 500's gains of more than 15%. Berkshire's shareholder letter also called on an investor to take the bearish view on Berkshire Hathaway shares at the upcoming shareholder meeting. On March 4, Buffett said on CNBC he had picked Doug Kass, head of Seabreeze Partners and a contributor at TheStreet, to make the case for shorting shares of Berkshire Hathaway. While Kass will certainly have room to make an argument, and he could even borrow Buffett's words, shorting Berkshire Hathaway shares has made for a disastrous trade over multiple decades. That may continue to hold true in a post-crisis economic recovery given Berkshire's growing number of businesses and the impressive earnings growth posted by units such as BNSF Railway and MidAmerican Energy, in addition to the firm's long-held insurance business and stock portfolio. "Berkshire Hathaway, led by Warren Buffett, is well positioned to benefit from improving earnings in its non-insurance business as the economy recovers, as well as from robust property-casualty insurance results," Jay Gelb, a Barclays analyst, wrote in a 129-page note Thursday that gives an "overweight" rating to Berkshire's Class A and B shares and respective price targets of $178,500 and $119 a share. Gelb noted that Berkshire had roughly doubled the S&P 500's gains in 2013, with the outperformance reflecting "substantial exposure to an improving economy and housing market, in addition to a strong positioning to rising equity markets." Currently, Berkshire holds about $90 billion in equity market investments, according to data compiled by Bloomberg, with Coca-Cola (KO - Get Report), Wells Fargo (WFC - Get Report) and International Business Machines (IBM - Get Report) standing out as the firm's three largest stock holdings.
"We expect Berkshire shares to benefit from strong growth in both book value per share and earnings, driven by its insurance and non-insurance businesses," wrote Gelb, who noted that as Berkshire's newer railroads, energy, housing, retail and manufacturing businesses have grown, insurance has become a smaller portion of Berkshire's annual earnings. The percentage contribution to operating earnings from Berkshire's non-insurance businesses increased from 43% in 2006 to 70% in 2012, according to Gelb.