Despite Berkshire Hathaway’s holdings in 43 stocks and two index funds, its $210 billion in invested assets can now be traced to just five branded companies.
For almost 60 years, Berkshire Hathaway (BRK.A -0.29%) (BRK.B 0.07%) CEO Warren Buffett has been on the rise. During that time, he oversaw the company’s growth into a $1 trillion business and also saw cumulative returns on the company’s Class A shares (BRK.A) exceed 5,600,000%.
One of the reasons Mr. Oracle of Omaha is so widely admired on Wall Street, aside from the company’s huge profits since the mid-1960s, is that he This lies in his attitude of trying to share the characteristics that he shares with other people. Buffett has regularly promoted companies with sustainable moats, strong management teams, and good capital return programs.
Berkshire Hathaway CEO Warren Buffett. Image source: Motley Fool.
But one of the unsung heroes of Buffett’s long-term success is portfolio concentration. Buffett and his longtime right-hand man Charlie Munger, who died in November, long believed their best ideas needed more investment capital.
Even though Berkshire Hathaway owns 43 stocks and two index funds, a whopping 67% ($210.4 billion) of the $315 billion portfolio that Buffett oversees at the company is held in just five stocks. Invested in unstoppable stocks.
Apple: $90.7 billion (28.8% of invested assets)
Even though Buffett has sold more than 500 million shares of Apple (AAPL 1.84%) since early October 2023 (presumably for tax purposes), the tech giant remains by far Berkshire Hathaway’s largest holding. It is.
Apple has been praised for its ultra-popular physical devices, such as the iPhone, which commands more than 50% of the domestic smartphone market, but its services division will be the company’s biggest focus going forward. The subscription service-driven operating model should steadily improve the company’s operating margins over time and help smooth out the fluctuations in revenue that typically occur during the iPhone replacement cycle.
Oracle of Omaha is also a big fan of Apple’s market-leading stock buyback program. Since the beginning of 2013, Apple has bought back $700.6 billion worth of its common stock, enough to buy out all but 499 other stocks in the S&P 500. These share buybacks reduced Apple’s outstanding shares by more than 42% and increased its earnings per share.
American Express: $41.8 billion (13.3% of invested assets)
Warren Buffett’s second-largest holding in the $315 billion portfolio he oversees at Berkshire Hathaway is credit services provider American Express (AXP -1.71%). Amex is Berkshire Hathaway’s second-longest continuous holding (since 1991).
What makes American Express an incredible stock to own for decades is its “double dip” ability. Meanwhile, Amex is the third-largest payment processor in the U.S. by credit card network purchases. This means you’re generating very predictable processing fees from merchants. On the other hand, the company is also a lender, earning annual fees and net interest income from cardholders. During periods of prolonged economic growth, Amex’s double dip ability is definitely beneficial.
Additionally, American Express has a knack for attracting wealthy customers. High-income individuals are less likely to change their spending habits than average-income cardholders. In theory, this should help AmEx weather economic turmoil better than most lenders.
Image source: Getty Images.
Bank of America: $31.9 billion (10.1% of invested assets)
Another top stock that Warren Buffett has been selling regularly these days is Bank of America (BAC -0.07%). Between July 17 and October 2, the Oracle of Omaha greenlit the sale of about 240 million BofA shares worth about $9.8 billion. Nevertheless, it remains Berkshire Hathaway’s third-largest holding.
The great thing about bank stocks is their strong connection to the business cycle. Recessions are a normal and inevitable part of economic cycles, but historically they are short-lived. Of the 12 recessions that occurred in the United States after World War II, only three lasted 12 months, and none of the other three lasted more than 18 months. By comparison, most economic expansions last for multiple years. These long periods of growth allow bank stocks like BofA to cautiously expand their loan portfolios.
Bank of America was also able to take full advantage of the most aggressive rate hike cycle in 40 years. A 525 basis point increase in the federal funds rate from March 2022 to July 2023 increased Bank of America’s quarterly net interest income by billions of dollars.
Coca-Cola: $28.1 billion (8.9% of invested assets)
The fourth-largest holding in Berkshire’s portfolio, and the true definition of an unstoppable stock, is consumer staples behemoth Coca-Cola (KO 0.25%). Coca-Cola, which has owned Berkshire stock since 1988, gives Buffett’s company an impressive dividend yield of 60% on a cost basis.
Coca-Cola’s continued success is a reflection of its geographically diverse operations. It operates in every country except North Korea, Cuba and Russia, and has more than 20 brands with annual sales of more than $1 billion. This level of geographic reach allows Coca-Cola to generate predictable cash flows in developed markets while simultaneously moving the needle for organic growth in fast-growing emerging markets.
Coca-Cola’s marketing is also top-notch. According to Kantar’s annual Brand Footprint report, Coca-Cola has been consumers’ number one brand of choice for 12 consecutive years. With over 100 years of history and the ability to connect with young audiences through digital media platforms, Coca-Cola is one of the strongest and most recognizable brands in the world.
Chevron: $17.9 billion (5.7% of invested assets)
Along with Apple, American Express, Bank of America, and Coca-Cola, the fifth unstoppable stock that accounts for two-thirds of Berkshire Hathaway’s $315 billion in investment assets is energy giant Chevron ( CVX -1.57%).
Warren Buffett didn’t invest nearly $18 billion in the global oil and gas giant on a whim. Such high stakes imply an expectation that the spot price of oil will continue to rise, or even rise further.
Years of cutting capital spending by energy giants (including Chevron) amid the coronavirus pandemic and Russia’s invasion of Ukraine strongly suggest that oil supplies will remain tight for some time. are. When the supply of an in-demand energy commodity is limited, it is not uncommon for spot prices to be advantageous.
Additionally, the Oracle of Omaha may appreciate the “integrated” aspect of Chevron’s business. Chevron makes most of its profits from upstream drilling, but it also owns power transmission pipelines and downstream chemical plants and refineries. These segments generate predictable cash flows and act as a hedge if the spot price of crude oil declines. In short, they play a critical role in supporting Chevron’s meaningful capital return program.
