Table of Contents
On Wall Street, Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett is truly in a class of his own. Without the use of fancy software or trading algorithms, the Oracle of Omaha has nearly doubled the benchmark’s total annualized return, including dividends paid, over nearly six decades. S&P500. On a total return basis, we’re talking about Berkshire’s Class A shares (BRK.A) increasing in value by about 5,387,100% under Buffett’s watch.
When you generate outsized returns on Wall Street, you tend to draw a big crowd. Berkshire Hathaway’s annual meeting regularly attracts about 40,000 investors eager to hear Buffett speak about the U.S. economy, the stocks Berkshire holds and his investment philosophy.
But thanks quarter filed Form 13Fswe don’t have to wait a whole year to understand what Warren Buffett and his top investment advisors, Ted Weschler and Todd Combs, have been buying and selling.
Although Berkshire Hathaway ended the June quarter with 45 stocks and two exchange-traded funds in its approximately $314 billion investment portfolio, concentration is one of the key attributes that has helped Buffett and his team easily outperform the S&P 500 for so long. in other words, Buffett and his team strongly believe in deploying additional capital for their best ideas.
As of the closing bell on August 16, 62% ($193.3 billion) of the $314 billion portfolio Warren Buffett oversees at Berkshire Hathaway was invested in just four unstoppable stocks.
Apple: $90.42 billion (28.8% of invested capital)
As has been the case for years, technology stocks Apple (NASDAQ: AAPL) remains Berkshire’s primary holding company.
However, the Oracle of Omaha and his team have one significant percentage of their company’s stake in Apple over the previous three quarters. This position once briefly represented up to 50% of Berkshire’s invested assets.
While Buffett opined at his company’s last annual shareholder meeting that he thinks Apple is a great company, he also hinted that corporate tax rates are likely to rise in the coming years. With Berkshire Hathaway sitting on a pile of unrealized profits from its stake in Apple, Buffett assumed that investors would eventually come to appreciate that he and his team were retaining profits and paying a historically low tax rate.
Warren Buffett is also an unapologetic fan of Apple’s market-leading stock buyback program. Adding in the $26.5 billion the company spent on share buybacks in its fiscal third quarter (ending June 29, 2024), Apple has put a whopping $700 billion to work on its stock since the start of 2013 to buy back. Buybacks can incrementally increase investors’ ownership stakes and increase earnings per share.
But the cautionary tale with Apple is that its growth engine has largely stalled. While revenue from the subscription ecosystem has been steadily growing, sales of physical devices, including the iPhone, have been less than impressive.
American Express: $38.2 billion (12.2% of invested capital)
The second-longest stock in Berkshire Hathaway’s portfolio, credit-services goliath American Express (NYSE:AXP)is currently Buffett’s second largest holding. AmEx, as American Express is commonly known, has been a continuous holding company since 1991 and is considered by Buffett to be one of his company’s eight “undefined” holding companies.
Financial services are Buffett’s favorite sector to put his company’s money into, and the reason why is simple: they are cyclical.
The Oracle of Omaha and his top aides are fully aware that economic contraction and recession are normal and inevitable. Instead of foolishly (small ‘f’) trying to guess when these recessions will happen, Berkshire’s brightest minds are playing a numbers game that is very much in their favor. Because recessions are short-lived (nine of the twelve recessions since the end of World War II have resolved in less than twelve months) and most periods of expansion last several years, it pays to buy and hold high-quality companies that grow in the future. lockstep with the US economy.
What makes AmEx special is its ability to benefit from both sides of the transaction path. It is currently the third-largest payment processor by purchase volume across the credit card network in the US, which allows it to collect fees from merchants.
But it is also a lender to consumers and businesses through its various credit cards. This facilitates the collection of annual fees and interest income. Being able to double down on the dip during long periods of economic expansion and playing both sides of the retail game has been the not-so-subtle secret to success.
Bank of America: $37.08 billion (11.8% of invested assets)
The third largest holding in Berkshire Hathaway’s portfolio of 45 stocks worth $314 billion, overseen by Buffett, is a money center giant Bank of America (NYSE: BAC). Following the sale of more than $3.8 billion in BofA shares by Berkshire’s investment team between July 17 and August 1, Bank of America has fallen behind AmEx in the pecking order.
Buffett’s love for bank stocks also revolves around their cyclical nature. During recessions, banks typically experience higher credit losses and credit delinquencies. By comparison, their loan portfolios tend to expand during significantly longer periods of economic growth.
What has made Bank of America such an attractive investment over the past two years is its sensitivity to changes in interest rates.
As of March 2022, the Federal Reserve began its steepest rate hike cycle since the early 1980s. No money center bank has benefited more in terms of added net interest income than BofA. Conversely, an expected rate easing cycle has the potential to negatively impact Bank of America’s net interest income more than its peers. This may be why Buffett has been turning his crew into salespeople lately.
Moreover, Bank of America’s management team has not been shy about investing in digitalization. By mid-2024, 77% of consumer households were banking digitally and 53% of all consumer loans were taken out online or via a mobile app. Digital transactions are considerable cheaper for banks than in-person interactions, which should ultimately lead to improved operational efficiency for BofA.
Coca-Cola: $27.67 billion (8.8% of invested capital)
The fourth top holding in Buffett’s $314 billion portfolio at Berkshire Hathaway, which together with Apple, American Express and Bank of America accounts for 62% of invested assets, is the beverage giant. Coca-cola (NYSE:KO). Coca-Cola is Buffett’s longest continuous investment at 36 years (since 1988).
The great thing about consumer staples stocks is that they are necessary no matter what is going on with the US/global economy or the stock market. As a supplier of branded beverages, demand for the company’s products is highly predictable year after year.
It also doesn’t hurt that Coca-Cola is one of the most recognized brands in the world. The marketing team uses digital media channels and artificial intelligence (AI) to reach a younger audience, while relying on well-known brand ambassadors and more than a century of history to connect with the adult consumers.
To further reinforce this point, Kantar’s annual ‘Brand Footprint’ research shows that Coca-Cola products have been the top choice on store shelves for twelve consecutive years. Having strong branding usually translates into exceptional pricing power.
The icing on the cake for Coca-Cola is that it is a geographically diverse company. With the exception of Cuba, North Korea and Russia, operations are underway in every country. This ensures consistent operating cash flow from developed markets, as well as the ability to move the organic growth needle in emerging markets.
Should You Invest $1,000 in Apple Right Now?
Before you buy shares in Apple, consider this:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Apple wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $787,394!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
*Stock Advisor returns August 22, 2024
American Express and Bank of America are advertising partners of The Ascent, a Motley Fool company. Sean Williams has positions in Bank of America. The Motley Fool holds positions in and recommends Apple, Bank of America and Berkshire Hathaway. The Motley Fool has one disclosure policy.
62% of Warren Buffett’s $314 Billion Portfolio Is Invested in These Four Unstoppable Stocks was originally published by The Motley Fool