Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) is hovering around an all-time despite last week's sell-off in the major indexes. At the time of this writing, Berkshire's market cap is $1.11 trillion, making it the seventh most valuable U.S.-based company behind Apple, Nvidia, Microsoft, Amazon, Alphabet, and Meta Platforms.
Although Berkshire is in the S&P 500, it is not in the Dow Jones Industrial Average (DJINDICES: ^DJI) -- despite being the most valuable non-tech-focused company in the U.S.
Here's why a stock split of its Class B shares could help Berkshire's chances of joining the Dow, why some Dow dynamics could still prevent that from happening, and if Berkshire is a value stock worth buying now.
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Berkshire split its stock 15 years ago
Berkshire issued Class B shares in 1996 to make it easier for folks with less investment capital to buy Berkshire stock at a low commission rate and to discourage mutual funds from splitting up Class A shares into smaller slices. In 2010, Berkshire issued a 50-for-1 split on Class B shares to accommodate its acquisition of BNSF railroad.
Now trading at a share price of just under $500, investors may be wondering if Berkshire would consider another stock split of its Class B shares. Today's age of zero-commission trading and fractional shares makes it easy to buy whatever dollar amount of a stock you like instead of full share increments. But a stock split would remove a key barrier to entry for Berkshire's inclusion in the Dow.
Stock splits and the Dow Jones Industrial Average
Industry-leading companies that split their stock may have a chance to be added to the Dow Jones Industrial Average. The Dow is a price-weighted index, meaning its 30 components are weighted based on their share prices rather than their market cap. The median price of stock in the Dow is around $225 a share. So, a company with a stock price in the thousands wouldn't be considered because it would affect the index's balance. The last three stocks that were added to the Dow -- Nvidia, Sherwin-Williams, and Amazon -- all issued stock splits that brought down their share prices within the range that would be acceptable in the Dow.
If Berkshire issued, let's say, a 3-for-1 stock split, it would put the share price right below the median level, giving it room to grow without dominating the index. But even then, Berkshire would need to replace a similar company to be included.
The Dow's concentration in the financial sector
Financial sector Dow components include Goldman Sachs, Visa, American Express, JPMorgan Chase, and Travelers Companies. All five components have relatively high stock prices that are above the median level in the Dow -- making financials the highest-weighted sector in the index. In fact, these five stocks alone make up a whopping 25.1% of the Dow, far higher than any other sector, including tech and the Dow's namesake industrial sector.
Given the size of Berkshire's insurance business, the most likely replacement would probably be Travelers Companies. But even then, Berkshire does so much more than insurance, including ownership of the aforementioned BNSF railroad; Berkshire Hathaway Energy; several retail, manufacturing, and services companies; and of course Berkshire's public equity portfolio.
Perhaps the best reason why Berkshire wouldn't be added to the Dow, even if it issued a stock split, is because of redundancies. Four of Berkshire's five largest public equity holdings -- Apple, American Express, Coca-Cola, and Chevron are also Dow components. Berkshire also has smaller positions in other Dow stocks, including Visa and Amazon.
At the time of this writing, the market value of Berkshire's stakes in these six companies is $167.76 billion -- which is over half the value of the total public equity portfolio and is sizable even considering Berkshire's market cap of $1.11 trillion.
So even if Berkshire split its stock, it still may not be added to the Dow. But more importantly, there is no clear reason for Berkshire to split its stock right now, given commission-free trading and fractional shares.
Dow dynamics aside, Berkshire is a buy
If Berkshire split its stock, I could see it being considered for the Dow, but still maybe not added. Stocks tend to get booted from the Dow because their share prices are far below the median level or have underperformed over an extended period.
Financials were the second-best performing sector in 2024. The Dow financial stocks have also experienced red-hot run-ups -- with all five components producing a total return of over 100% each in the last five years. So just as Berkshire doesn't have a no-brainer reason for being added to the Dow, none of these five companies deserves to get kicked out either. Nvidia replacing Intel, on the other hand, made a ton of sense. So did Amazon swapping with Walgreens Boots Alliance and Sherwin-Williams booting chemical giant Dow.
The best reason to buy Berkshire isn't a potential stock split or inclusion in the Dow, but rather the fundamental strength of Berkshire's underlying businesses and the diversification Berkshire provides to various end markets. Berkshire's record high $334.2 billion in cash, cash equivalents, and short-term investments provides ample dry powder for Berkshire to pounce on an opportunity if it perceives it as a good value.
All told, Berkshire remains an ultra-high-quality business that deserves to be at an all-time high.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. JPMorgan Chase is an advertising partner of Motley Fool Money. American Express is an advertising partner of Motley Fool Money. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Chevron, Goldman Sachs Group, Intel, JPMorgan Chase, Meta Platforms, Microsoft, Nvidia, and Visa. The Motley Fool recommends Sherwin-Williams and recommends the following options: long January 2026 $395 calls on Microsoft, short February 2025 $27 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
