"The stock god" Buffett's report card is about to be revealed, UBS sings bullish tune: optimistic about Berkshire overcoming the "August curse"

Warren Buffett, known as the "Stock God," will release the performance report of Berkshire Hathaway (BRK.A.US) on Saturday. UBS Group AG, an international bank, has released a bullish research report on the company, betting on Buffett's leadership to break the so-called "August Curse" - that is, to achieve a significant upward trend in the August period, which is typically weak due to the pressure of overvalued S&P 500 index, uncertain economic prospects due to tariffs, and seasonal selling factors. UBS Group AG has slightly raised the 12-month target stock price of Berkshire to $595 (B shares), corresponding to approximately $892,120 (A shares), and reiterated a "buy" rating on Berkshire. As of Thursday's close, Berkshire B shares closed at $471.88. UBS Group AG stated that Berkshire Hathaway's GEICO insurance business is expected to demonstrate better-than-expected growth resilience, while BNSF railway operations profitability is expected to expand against the odds. The dual engine of energy and manufacturing will support Berkshire's non-insurance business for long-term stability. More importantly, the record cash reserves - UBS Group AG expects the company's cash flow figure to further increase from an unprecedented $340 billion to approximately $346 billion by the end of the year, providing immense merger prospects, expansion of market investment size, and stock buyback opportunities. These factors collectively show a bullish investment outlook with diversification and highlight Berkshire as a strong safe haven. In the US stock market and even the MSCI global stock market continue to hit new highs and enter the traditionally volatile "August Curse" period, does Berkshire Hathaway, with record cash flow, have the potential to outperform the market? UBS Group AG's valuation analysis model and fundamental outlook suggest a positive answer. Under Warren Buffett's leadership, Berkshire Hathaway has not only achieved substantial returns in the stock market over the long term but also possesses a significant cash flow strengthening its risk-averse attributes. Furthermore, it has a unique diversified business portfolio - cyclical businesses such as BNSF Railway, manufacturing, and retail provide strong growth momentum in the expanding US economy, while defensive sectors such as insurance, utilities, and energy serve as profit anchors during economic slowdowns or market declines, providing downside protection for the investment giant. In terms of valuation models, UBS Group AG's research report shows that Berkshire is currently trading at historically low levels in terms of price-earnings ratio and price-to-book ratio, with a strong safety margin, making it resilient in high valuation and seasonal selling environments, and exhibiting better resilience and risk-averse attributes with relatively higher returns. In contrast, the overall valuation of the S&P 500 index components is currently at or near historical highs due to the significant price increases of large tech giants such as NVIDIA Corporation and Microsoft Corporation, which together account for over 35% of the index's weight. These large tech giants with high valuations carry with them overly optimistic expectations, and once sentiment reverses, the potential for large fluctuations and price declines is significant. Profitability from the insurance sector is expected to exceed expectations, and the stable railway operations and potential acquisition of CSX are drawing attention UBS Group AG's research report points out that Berkshire's insurance business is expected to turn around and perform strongly in the upcoming quarter, mainly benefiting from the recovery in profitability of the GEICO insurance business and lower catastrophe losses in the reinsurance business. After system upgrades and pricing adjustments, GEICO's combined loss ratio is expected to decline to around 83% by the second quarter of 2025 (far below its target level of 96%), showing a significant improvement in underwriting profitability. In addition, policy numbers and premium income are expected to return to growth (number of policies up by 6.5% year-on-year, premiums up by 10%), and property and casualty reinsurance and the Primary group are also expected to benefit from low catastrophe claims, potentially surpassing market expectations in overall underwriting profits. Therefore, UBS Group AG expects the outstanding performance of the insurance sector to be the core driver of Berkshire's performance exceeding expectations. The railway business is expected to operate steadily, with attention drawn to the potential acquisition of CSX. Berkshire's BNSF Railway maintains stable operating efficiency in an environment of economic slowdown. Although the growth rate of freight volume in the second quarter of 2025 is expected to slow down to about +1.6% from the first quarter's +5.2% (partly due to a decline in coal transportation), BNSF's operating profit margin is expected to increase by approximately 1.2% year-on-year, benefiting from lower fuel costs and increased efficiency from staff reductions. Recent signs of major consolidation in the railway industry: the leading US railway transport company, Union Pacific (UNP.US), is interested in acquiring Norfolk Southern (NSC.US). UBS Group AG's analysis suggests that this may prompt Berkshire to take defensive measures, considering acquiring another Eastern railway giant, CSX. CSX is currently trading at about 20 times earnings in 2026, and with a 25% to 35% acquisition premium, the deal size is estimated to be between $82 billion to $88 billion, equivalent to about 24% to 26% of Berkshire's current cash reserves. UBS Group AG calculates that this potential transaction will significantly boost Berkshire's earnings in 2026 - assuming reasonable synergistic growth effects, it is expected to increase operating net profit by about 8% in that year. This potential deal not only helps BNSF expand to a nationwide cross-continental railway network but also effectively utilizes Berkshire's record cash reserves to achieve a stronger growth trajectory in business. For the "Stock God" Buffett, waiting for the right "elephant-sized" acquisition opportunity to achieve strong growth with a massive amount of cash has been one of his investment principles. The potential acquisition of CSX is a typical example of this path: if the deal price is fair and has synergistic effects, Berkshire's immense financial strength will play a role in expanding its territory without diluting shareholder value. At the same time, the company maintains a high degree of financial flexibility, allowing Berkshire to quickly deploy cash to repurchase its own stock or acquire high-quality assets globally in the event of a market downturn or undervaluation. This capital strategy of being able to attack and defend is a key factor in Buffett's long-term success, and the analyst team at UBS Group AG also highly recognizes this. Berkshire vows to break the "August Curse" Under the leadership of "Stock God" Buffett, the market is expecting this investment behemoth to break the seasonal curse with long-term stable fundamentals, potential merger plans, and record-breaking cash flow. Historical data shows that the largest stock market volatility often occurs in August. Worse still, August is usually one of the worst two months of the year for stock market performance. After setting the strongest continuous rise record since 2020, the S&P 500 index, which is at historically high valuations, is about to enter the traditionally challenging period of the year. Statistical data shows that over the past thirty years, the benchmark index has performed the worst in August and September, with an average decline of 0.7%, while other months have an average gain of 1.1%. Analysts generally believe that this seasonal selling characteristic is partly due to fund managers reassessing their portfolios for the year during this period. This year, during this sensitive window of August and September, any news regarding Trump's tariffs, economic data, Fed interest rate paths, or corporate earnings could trigger significant selling in the stock market. In the current environment of high valuations and growing concerns about volatility in the US stock market, Berkshire Hathaway, under Buffett's leadership, is expected to demonstrate attributes that are relatively resistant to declines and exceed the market performance, with long-term stable fundamentals, low valuation premiums, defensive asset allocation, and an extremely abundant strategic cash reserve and significant room for imagination in the merger market. When market sentiment shifts from extreme optimism to caution, this "whale of Omaha" may navigate through the storm with its deep intrinsic value and flexible financial and capital operations. Berkshire's long-standing diversified layout means that it benefits from business sectors regardless of the macroeconomic environment, demonstrating steady profit capabilities throughout the economic cycle. As UBS Group AG stated, with a robust US economy, the manufacturing and railway businesses are poised for strong growth; in times of economic slowdown, the record cash flow, insurance business, and massive balance sheet act as defensive shields, supporting the company's performance. This combination of offensive and defensive capabilities allows Berkshire to perform relatively well in different market conditions, particularly the fundamental basis for outperforming the market during periods of intense market volatility and weakness. Berkshire's stock investment portfolio and wholly-owned subsidiaries tend to focus on industries with stable cash flow, strong market presence, and high cash reserves, such as Apple Inc., Coca-Cola Company, and American Express Company. Core assets like insurance businesses, utilities, energy pipelines, and railway transportation possess stable income characteristics, resulting in Berkshire's overall volatility being much lower than the market and often having excess alpha investment returns during market downturns. (Note: This translation may not be perfect and some context may have been lost or altered in the translation process.)