What's Ahead for Berkshire Hathaway in 2012?

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A new year is rapidly approaching, and that means it's a perfect time to sit down with some of the stocks you own -- or, perhaps, are thinking about buying -- to figure out what 2012 may bring.

Today I'm going to take a look at Berkshire Hathaway (NYS: BRK.A) (NYS: BRK.B) , Warren Buffett's Nebraska-based conglomerate that couldn't quite keep up with the rest of the market in 2011. Could 2012 promise sunnier times for Berkshire? Let's dig in.

The tale of the tape

Market Cap$189 billion
Price-to-Book Value1.18
Trailing Price-to-Earnings16.3
Forward Price-to-Earnings15
Expected Five-Year Growth5%

Source: S&P Capital IQ.

The keys for 2012
Investors will obviously want to keep an eye on all facets of Berkshire Hathaway as it forges ahead, but I think there are three areas that deserve extra focus: the economy, catastrophes, and Buffett.

It may be boring to say that the fate of Berkshire next year will depend on what happens in the broad economy, but, like it or not, it's true. Berkshire is a broad collection of businesses, most of which will perform best in a growing economy. From railroad operator Burlington Northern Santa Fe to Fruit of the Loom, Borsheims Jewelry, and Benjamin Moore, Berkshire's bottom line will look much better if we see brighter news on the economic front.

As a corollary to that, the conglomerate's 2012 will look a lot better if the broad stock market performs well. With a huge investment portfolio that includes big chunks of Procter & Gamble (NYS: PG) , ConocoPhillips (NYS: COP) , and Wells Fargo (NYS: WFC) , if stocks do well, it'll probably mean good things for Berkshire.

A big part of Berkshire's diversified insurance business is its Berkshire Hathaway Reinsurance Group, which takes on reinsurance risks for catastrophes and other large, unusual risks. Because of the type of risks that BHRG takes on, there's a tendency for big swings in profit from the segment as it gets hit by catastrophes that it has to pay out on. In 2011, BHRG was hit with a few such losses that sent the division well into the red through the first three quarters of the year. If there are fewer catastrophes for the business to cover in 2012, the year-over-year comparison will look very favorable.

Finally, investors will want to keep a close eye on Buffett in the year ahead. With the Oracle of Omaha now over 80, there are a lot of concerns about his health and longevity. To be sure, I think Berkshire Hathaway won't be quite as great without Buffett, but those concerns aren't what I'm referring to here. In 2011, Buffett proved he's still full of surprises by announcing a share-buyback plan for Berkshire and deciding to buy a considerable stake in tech giantIBM (NYS: IBM) . What might Uncle Warren pull out of his sleeve in 2012? We'll just have to stay tuned.

One place Buffett is looking
To get the best of Buffett's investing prowess, the best bet for most investors is simply to buy Berkshire. However, for more adventurous investors, there's a beaten-down sector that the Oracle has homed in on. To read more about it, grab a free copy of The Motley Fool's special report, "The Stocks Only the Smartest Investors Are Buying."

At the time this article was published The Motley Fool owns shares of IBM, Wells Fargo, and Berkshire Hathaway and has created a covered strangle position on Wells Fargo.Motley Fool newsletter serviceshave recommended buying shares of Berkshire Hathaway and Procter & Gamble. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors.Fool contributorMatt Koppenhefferowns shares of Berkshire Hathaway but has no financial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting hisCAPS portfolio, or you can follow Matt on Twitter,@KoppTheFool, or onFacebook. The Fool'sdisclosure policyprefers dividends over a sharp stick in the eye.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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