Key Points

New Berkshire Hathaway CEO Greg Abel is charting a course distinct from that of predecessor Warren Buffett.
The conglomerate appears equally focused on full ownership of strong high-quality firms as on equity stakes for partial exposure.
This tactic could deliver stronger more consistent value for Berkshire shareholders and steadier cash flow for the company itself.
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Berkshire Hathaway (NYSE: BRKA) (NYSE: BRKB) is transforming under CEO Greg Abel's guidance. While the recent purchase of another $10 billion in Alphabet shares draws attention it is not the key development given that Berkshire already held more than $20 billion in Google's parent.

Instead the move that reveals much about Berkshire's fresh direction is the announcement that it is buying all of publicly traded Taylor Morrison Home (NYSE: TMHC) for $8.5 billion. The firm will then be taken private as a wholly owned asset. This adds proof that Abel and his team are shifting away from mere share ownership subject to market swings and toward full control of businesses.

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Same industry different approach

The deal fits well with Berkshire's existing holdings. The conglomerate already owns stakes in building materials firm Louisiana Pacific and recently added shares of homebuilder Lennar. Privately it controls Acme Brick Company Clayton Homes and Home Services of America showing clear familiarity with residential real estate and the benefits of the current housing shortage. (J.P. Morgan analysts expect it could take as long as 10 years to address the nation's shortfall of roughly 2.8 million homes.)

The notable aspect of the Taylor Morrison purchase is the choice to gain complete ownership by privatizing a listed company rather than increasing exposure to Lennar or similar names.

Is this a new operating strategy for Berkshire?

If this were the only recent case it might be overlooked. Yet it follows another move from earlier this year. In January Berkshire fully acquired Occidental Petroleum's chemical unit OxyChem.

The acquisition aligns with existing assets such as Lubrizol and LiquidPower Specialty Products. Even so it was not essential to own the entire operation. The decision reflects a preference to hold all rather than part of a business.

This supports an idea raised recently that a philosophical change is underway moving away from a challenged stock market toward full ownership of cash-generating companies under Berkshire's direct control.

Smart strategy right now

It remains early to conclude that Greg Abel favors private holdings over public equities since Berkshire is investing even more in new Alphabet shares than in Taylor Morrison.

Still the recent private transactions are substantial. Berkshire's cash reserves continue to grow indicating that Abel and his team see limited appeal in public equities at present valuations.

This approach holds long-term merit. Most stocks appear costly on both cyclical and secular grounds. Avoiding the danger of a broad valuation reset is best achieved by capturing a company's full cash flow through outright ownership.

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James Brumley has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet Berkshire Hathaway and Lennar. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq Inc.