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For about 60 years, berkshire hathaway (BRK.A 0.92%) (BRK.B 1.13%) CEO Warren Buffett holds investment clinics that anyone can attend. Since becoming Berkshire’s CEO in the mid-1960s, Buffett has become known as the “Oracle of Omaha,” with total returns on the company’s Class A shares (BRK.A) reaching nearly 4,500,000%. . As of the closing bell on January 19, 2024.
A long book has been written that focuses on the investment characteristics that Mr. Buffett uses when picking winning stocks. But his penchant for portfolio concentration has been one of the key factors in Berkshire Hathaway’s continued outperformance. Despite owning about 50 stocks, just seven core holdings account for 83% ($301.7 billion) of Berkshire Hathaway’s $365 billion in invested assets.
Berkshire Hathaway CEO Warren Buffett. Image source: Motley Fool.
1. Apple: $175,384,746,776 (48.1% of invested assets)
Based on over $175 billion currently invested in tech stocks apple (AAPL -0.17%), it’s clear that Buffett and his team value having a large percentage of the top ideas in their investment portfolio. Apple has owned Buffett’s company for eight years.
What makes Apple a special company is its innovation. Its physical products have long been loved by users. This includes the market-leading iPhone, as well as other wearable products such as the iPad, Mac, and Apple Watch.
But Apple’s innovation goes beyond physical products. CEO Tim Cook has emphasized the company’s move to subscription services in recent years. The service-driven operating model should further improve the company’s operating margins, improve customer loyalty, and reduce revenue volatility seen during major iPhone replacement cycles.
I would be remiss if I didn’t also mention that Apple’s capital return program is unparalleled among publicly traded companies. Since launching its stock repurchase program in 2013, the company has repurchased more than $600 billion in common stock.
An aggressive rate hike cycle has benefited Bank of America’s earnings. Effective Federal Funds Rate data from YCharts.
2. Bank of America: $33,278,491,633 (9.1% of invested assets)
There is no market sector that Warren Buffett knows more about than finance.Therefore, it is no surprise that money center giants emerge american bank (BAC 1.24%) as Berkshire’s second-largest holding.
One of the main reasons Buffett and his team love bank stocks is because they are cyclically sensitive. The Berkshire Hathaway Investment Dream Team fully recognizes that recessions are a natural part of the economic cycle. They also understand that recessions are short-lived, and their length comfortably exceeds periods of economic expansion.
This period of disproportionate growth in the U.S. economy allows companies like Bank of America to expand their loan portfolios and steadily increase their net interest income over time. A focus on cyclical stocks has helped Berkshire Hathaway and its shareholders.
Another thing to note about BofA is its sensitivity to interest rates. Changes in monetary policy will have a larger impact on Bank of America’s net interest income than other large banks. Over the past two years, the most aggressive rate hike cycle in 40 years has boosted profits.
3. American Express: $27,770,51,919 (7.6% of invested assets)
credit service provider american express (AXP 1.21%) Berkshire Hathaway has held the stock continuously since 1991. It’s now the third-largest holding in the $365 billion portfolio overseen by Warren Buffett and his inner circle.
In addition to benefiting from a long period of economic growth, American Express is also a “binocular” that generates revenue from both sides of the transaction. The company is the third largest payment processor in the United States (the world’s largest consumer market) by credit card network purchases and a lender to businesses and consumers. This allows AmEx to generate interest and fee income in addition to merchant fees for processing transactions.
Additionally, American Express has a knack for attracting more affluent customers. High-income cardholders are less likely to change their purchasing habits even if the economy worsens. This means AmEx may be able to weather a recession better than most financial institutions.
Image source: Coca-Cola.
4. Coca-Cola: $23.932 billion (6.6% of invested assets)
beverage stock coca cola (KO 0.42%) is the oldest stock in Berkshire Hathaway’s investment portfolio (since 1988) and is currently its fourth largest holding. Thanks to an extremely low cost basis of $3.2475 per share, Berkshire earns an annual return of nearly 57% on Coca-Cola stock.
The great thing about Coca-Cola is the predictability of its operating cash flows. Food and beverages are essential items that are purchased in any economic climate.
What’s more, the company’s products are sold in all but three countries: North Korea, Cuba, and Russia (the latter due to the invasion of Ukraine). This virtually unparalleled geographic diversity ensures stable operating cash flows from developed markets and driving organic growth from emerging markets.
Coca-Cola’s marketing team has also been incredibly successful in attracting consumers for decades. The company leverages digital media and artificial intelligence (AI) to tailor advertising to younger consumers, while relying on well-known brand ambassadors to reach more mature audiences.
5. Chevron: $15,681,716,627 (4.3% of invested assets)
Berkshire Hathaway’s Warren Buffett’s fifth-largest holding in his portfolio is an energy company. chevron (CVX 2.52%). Oil stocks are known for their strong capital return programs, which makes Chevron one of Berkshire’s top dividend stocks.
Energy stocks have historically not played a large role in Buffett’s portfolio until recently. Chevron’s position of more than $15 billion indicates that the Oracle of Omaha and its team expect the spot price of crude oil to continue rising.
Supporting this view are Russia’s aforementioned invasion of Ukraine and the multi-year capital shortage caused by energy giants due to the COVID-19 pandemic. With oil supplies limited, it is believed that the spot price of crude oil may rise.
Additionally, Chevron has the strongest balance sheet of any integrated oil and gas company. Rising energy commodity prices allowed Chevron to significantly reduce net debt through his 2022. The company has good financial flexibility, which could help in the event of an acquisition.
For Occidental Petroleum to further reduce its long-term debt, spot oil prices will need to rise. WTI crude oil spot price data by YCharts.
6. Occidental Petroleum: $13,750,445,662 (3.8% of invested assets)
Another big oil stock in Berkshire Hathaway’s investment portfolio is western oil (Oxy 1.22%). All of the approximately 243.7 million shares of Occidental’s common stock held by Buffett’s company have been purchased since early 2022.
Occidental is an integrated oil and gas operator like Chevron, but with a meaningful twist. While Chevron derives most of its revenue from its downstream operations (such as refineries and chemical plants), Occidental derives most of its revenue from its upstream drilling division.
If the spot price of crude oil rises, Occidental’s operating cash flow would benefit disproportionately compared to its peers. Understand that the opposite happens when the spot price of crude oil falls.
It’s also worth noting that Occidental Petroleum has a significant amount of debt. Net debt has effectively been cut in half since acquiring Anadarko in 2019, but the $18.6 billion in net debt still on the balance sheet as of September 30 is nothing to sneeze at. . Occidental strongly desires higher spot prices for crude oil to further improve its financial flexibility.
7. Kraft Heinz: $12,074,539,051 (3.3% of invested assets)
The seventh stock, which together with Apple, BofA, Amex, Coca-Cola, Chevron and Occidental accounts for 83% of Berkshire Hathaway’s $365 billion in invested assets, is a consumer packaged food and condiment company. Kraft Heinz (KHC 1.20%).
The advantage of consumer staples stocks is the predictability of operating cash flows. Because people need food no matter the economic climate, a company’s cash flow does not change significantly from year to year.
Additionally, the company enjoyed some organic growth during the pandemic. Kraft Heinz’s famous brand and easy-to-make dishes have made it a popular choice at a time when fewer people are eating out.
But you can also make the case that Kraft Heinz is one of Buffett’s worst investments. Kraft Heinz has reported volume and mix declines in multiple quarters, suggesting consumers are trading up to cheaper store-brand products. With so much debt on its balance sheet and the company’s pricing power reduced, a high-yield dividend appears to be investors’ only saving grace.
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