Approximately two-thirds of Warren Buffet's extensive $293 billion investment portfolio at Berkshire Hathaway is allocated to these five indomitable company shares.
Few financial managers have the sway over both professional and casual investors like the "Sage of Omaha," Warren Buffett. Since assuming the role of CEO at Berkshire Hathaway (BRK.A -0.55%) (BRK.B -0.60%) in the mid-'60s, Buffett's management has delivered a staggering cumulative return of over 5,700,000% on Berkshire's Class A shares (BRK.A), as of the market close on Nov. 18.
Not only does Buffett consistently outperform Wall Street's main benchmark index – the S&P 500 – in terms of returns, but investors have also come to appreciate his transparent investment strategy. During Berkshire Hathaway's annual shareholder meetings and in his annual letters to shareholders, Buffett openly discusses the criteria he looks for in impressive businesses, and shares his views on the U.S. economy.
What truly defines Buffett's success, however, is his willingness to focus Berkshire Hathaway's investment portfolio. Buffett and longtime collaborator Charlie Munger, who passed away in November 2023, have long emphasized the importance of concentrating their top investment ideas for additional capital.
Post the release of Berkshire's most recent Form 13F, five unwavering investments account for an astounding 65% ($191.3 billion) of the $293 billion investment portfolio Buffett oversees.
Apple: $68.4 billion (23.4% of invested assets)
As has been the case for years, tech giant Apple (AAPL 0.60%) continues to be Berkshire Hathaway's largest investment by a significant margin. However, Buffett and his team have been net sellers of stocks for eight consecutive quarters, and have offloaded more than 615 million shares of Apple over the past 12 months.
At Berkshire's annual shareholder meeting earlier this year, Buffett argued that the corporate income tax rate was likely to increase in the near future. Consequently, cashing in on some of his company's substantial unrealized gains in Apple now would, in hindsight, be viewed as a wise decision by investors.
That being said, with Donald Trump winning the presidency, corporate income tax hikes are now off the table. With Apple stock skyrocketing following the reveal of Apple Intelligence, its personal intelligence system for its physical products, including iPhone, Buffett and his team have missed out on significant potential gains.
The one saving grace for Apple is its market-leading share repurchase program. Since January 2013, Apple has repurchased $700.6 billion worth of its common stock, reducing its outstanding share count by over 42%. This has had a noticeably positive impact on its earnings per share (EPS).
However, with Apple's physical product sales growth slowing down and the company's trailing-12-month price-to-earnings ratio reaching 38, a devoted value investor like Buffett may be compelled to continue selling.
American Express: $43.3 billion (14.8% of invested assets)
The second-largest holding in Berkshire's $293 billion investment portfolio is one of Buffett's eight "permanent" holdings, American Express (AXP -0.68%). American Express has been a constant investment since 1991.
Financial stocks are Buffett's preferred investment sector for one primary reason – they're cyclical. Buffett and his team are well aware that the economic cycle isn't a straight line. Although recessions are normal and inevitable, they're typically brief and rare. Longer periods of growth allow financial stocks to flourish.
American Express's success can be attributed to its dual revenue stream. It's the third-largest payment processor in the U.S. by credit card network purchase volume, generating regular fees from merchants. Moreover, it's also a lender that collects annual fees and interest income from its cardholders.
To top it off, American Express has been adept at attracting high-income clientele over the years. Consumers with higher incomes are less likely to alter their spending habits or default on payments during economic downturns. Despite being a cyclical company, American Express's ability to attract affluent customers should assist it in navigating recessions better than most lenders.
Bank of America: $35.8 billion (12.2% of invested assets)
The No. 3 holding in Berkshire's portfolio is another financial stock, Bank of America (BAC). Since July 17, based on SEC Form 4 filings, Buffett has sold more than 266 million shares of Bank of America stock.
Despite not mentioning Bank of America during his comments on corporate income tax rates in early May, it's reasonable to assume that Buffett is approaching his company's substantial unrealized gains in Bank of America in a similar manner as Apple.
This aggressive selling activity in Bank of America might also reflect the stock market's historically high valuation multiple. Based on the S&P 500's Shiller price-to-earnings (P/E) ratio, the stock market has only been pricier than it is now twice in the last 153 years. Following previous instances of market overvaluation, the S&P 500 has subsequently lost 20% or more of its value.
On the positive side, Bank of America stands out as the most interest-sensitive among the largest U.S. banks by assets. The Federal Reserve's aggressive rate hikes from March 2022 to July 2023, a series not seen in four decades, significantly increased Bank of America's interest income, adding billions to its earnings each quarter. Despite the Federal Reserve's recent move towards easing interest rates, Bank of America is expected to continue enjoying substantial interest income for some time.
Coca-Cola: $24.7 billion (8.4% of invested assets)
Coca-Cola, a key holding in Warren Buffett's portfolio with a market value of 1.92%, is Berkshire Hathaway's fourth-largest investment and the longest-held stock in the portfolio, having been part of it since 1988. Thanks to Berkshire's low acquisition cost, Coca-Cola delivers an annual dividend yield that exceeds its cost by 60%.
One of the factors contributing to Coca-Cola's enduring success is its status as a consumer staples stock. This category includes companies that provide essential goods (like beverages in Coca-Cola's case) that consumers purchase consistently regardless of economic conditions. This leads to a consistent cash flow that is rare among businesses.
Further boosting Coca-Cola's consistency is its widespread geographic presence. Operating in nearly every country except for North Korea, Cuba, and Russia (due to the latter's conflict with Ukraine), Coca-Cola exploits profitable opportunities in developed markets while also stimulating growth in emerging markets.
Branding plays a significant role in Coca-Cola's success. Its marketing strategy leverages digital media and AI to appeal to young consumers. Coca-Cola's products have consistently been the most popular choice from retail shelves, according to Kantar's "Brand Footprint" report, for 12 consecutive years.
Chevron: $19.1 billion (6.5% of invested assets)
Berkshire Hathaway's fifth major investment, alongside Apple, American Express, Bank of America, and Coca-Cola, which make up near 65% of Berkshire's $293 billion portfolio, is energy titan Chevron (CVX -0.96%).
Energy stocks have not traditionally been a significant part of Berkshire's portfolio. Buffett's investment of over $19 billion in Chevron indicates a positive outlook on the price of crude oil.
The geopolitical tensions caused by Russia's invasion of Ukraine and uncertainties surrounding Europe's long-term energy needs, coupled with three years of underinvestment in the energy sector during the COVID-19 pandemic, have limited the production capacity of energy majors (including Chevron). When the supply of in-demand commodities like oil cannot be quickly increased, it can lead to a rise in the spot price of that commodity.
Though Chevron primarily gains its strong profits from its drilling segment, its ancillary operations, such as transmission pipelines, refineries, and chemical plants, help it maintain profitability even during periods of lower crude oil spot prices.
In terms of investing, Warren Buffett's focus on Chevron as one of Berkshire Hathaway's major investments indicates a positive outlook on the price of crude oil due to geopolitical tensions and limited production capacity. Similarly, Berkshire's substantial unrealized gains in Apple have made Buffett consider cashing in some shares, given the likelihood of an increase in the corporate income tax rate.
