Berkshire Hathaway Outperforms S&P 500, Signaling Little Change for Buffett

Tickers in this article: BRK.A BRK.B
NEW YORK ( TheStreet) -- Berkshire Hathaway on Saturday reported better-than-forecast operating earnings as the Warren Buffett-run conglomerate continues to see its earnings rise amid a slow but steady recovery of the U.S economy.

Berkshire Hathaway reported operating earnings of $3.7 billion for the fourth quarter of 2013, a 34% increase from year-ago levels. When counting investment and derivative gains of $1.2 billion for the fourth quarter, Berkshire Hathaway reported net income of just under $5 billion for the fourth quarter, a new record.

Analysts forecast that Berkshire would earn $46.3 billion in revenue and operating income of $3.5 billion, according to Bloomberg data. While Berkshire's revenue was projected to rise, analysts forecast profits at the conglomerate would drop.

Book value per Class A share rose to $134,973 for the full-year, a 18% increase from the company's book value per share of $114,214 at the end of 2012. Berkshire's gain in net worth during 2013 was $34.2 billion, according to the the company.

Those gains allowed Berkshire Hathaway to outperform the S&P 500 Index over the years between 2007 and 2013. In Berkshire's 2012 letter to shareholders, Buffett cautioned investors that the firm might underperform the S&P 500 over a five year stretch ending in 2013, potentially forcing the company to re-think its strategy.

Once more, however, Berkshire has delivered.

"Over the stock market cycle between yearends 2007 and 2013, we overperformed the S&P. Through full cycles in future years, we expect to do that again. If we fail to do so, we will not have earned our pay. After all, you could always own an index fund and be assured of S&P results," Buffett said.

There was a twist, however, to Berkshire's performance. The conglomerate's book value per share growth did underperform the S&P 500 the years between 2009 and 2013. Instead of discussing those results, Buffett focused on a market cycle starting in 2007.

"On the operating front, just about everything turned out well for us last year - in certain cases very well," Warren Buffett said in a letter to shareholders released on Saturday.

Bill Smead, chief investment officer of Smead Capital Management said in a Friday that "What we would look for in Berkshire's annual letter are the signs that it continues to be a good way to be an all-in bet on the U.S. economy."

Berkshire Hathaway did did not purchase shares during 2013, because the stock price did not descend to the 120% of book value per share or below. "If it does, we will be aggressive," Buffett said.

The investing conglomerate will continue to be aggressive on the merger and acquisition from, Buffett said, after investing billions in the takeover of Heinz in early 2013. MidAmerican Energy, the company's utility division may be one area where acquisitions continue to be a focus.