These 4 stocks represent 70% of Warren Buffett’s portfolio
There is little doubt that Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett is one of the greatest investors of all time. Since taking office as CEO in 1965, he has created more than $ 500 billion in shareholder value and has generated an average annual return for Berkshire Hathaway shares of 20%. That’s an overall return of over 2,800,000%, through December 31, 2020, for those of you keeping the score at home.
With such a track record, it should come as no surprise that Wall Street and investors are anxiously awaiting the Oracle of Omaha’s 13F filings with the Securities and Exchange Commission. A 13F provides a quarterly snapshot of what Buffett and his investment team have bought and sold.
After adjusting for Buffett’s second quarter buys and sells, one thing is quite obvious: The Oracle of Omaha doesn’t believe in diversification, if you know what you are doing. Last weekend, just four stocks in Berkshire Hathaway’s portfolio accounted for 70% of its $ 316 billion in invested assets.
Apple: 42.5% of invested assets ($ 134,491,280,983)
Pivot of innovation Apple (NASDAQ: AAPL) is often called by Warren Buffett the “third company in Berkshire”. This statement makes even more sense when you realize that Berkshire’s stake in Apple is worth $ 134.5 billion and represents just over 42% of its company’s portfolio.
One of the reasons Apple is such an overwhelmingly successful company is its branding. Every time a new product comes out, you will see brand loyalty manifesting itself and customer lines spread across its stores. Apple is the world’s most valuable brand, and no other company comes close, according to a study by Visual Capitalist.
Apple is also benefiting immensely from the switch to 5G, as well as its continued push towards subscription services. Over the past nine months, Apple has recorded $ 153.1 billion in iPhone sales, which is a huge 38% improvement over iPhone sales in the same period a year ago.
Service revenues also hit a record $ 50.1 billion in the nine months of fiscal 2021, representing a 28% year-over-year increase. Since service revenues offer significantly higher and more consistent margins than product sales, Apple’s already insane operating cash flow is expected to increase further in the years to come.
To complete this story, Apple delivers for its shareholders. His dividend has increased 132% since his reinstatement in 2012, and the company has averaged $ 15.7 billion in quarterly share buybacks over the past five years. It’s the perfect Buffett stock in every way.
Bank of America: 13.2% of invested assets ($ 41,696,235,482)
Even though Apple is Berkshire’s biggest undisputed stake, Buffett’s favorite place to make his company’s money work is bank stocks. And there ain’t no bank stocks he loves more than Bank of America (NYSE: BAC).
Generally speaking, the Oracle of Omaha likes cyclical businesses. He fully understands that while recessions are inevitable, they usually only last a few months to a few quarters. By comparison, periods of economic expansion often last for years or even a decade. Bank stocks like BofA are perfectly positioned to take advantage of these long-term expansions.
Bank of America is also the most sensitive to the interests of central banks. In the company’s latest quarterly presentation, BofA notes that a parallel shift in the interest rate curve by 100 basis points would generate around $ 8 billion in additional net interest income over the next 12 months. Since this income would be based on existing loans, it would actually go directly to his bottom line. When the Federal Reserve inevitably raises rates, Bank of America will be a major beneficiary.
And don’t overlook BofA’s enhanced digital engagement trends, either. With more of its customers moving their banking transactions online or to mobile, BofA has been able to consolidate some of its branches and reduce its non-interest charges.
With a rich history of dividend payments and share buybacks, Bank of America is expected to be a long-time Berkshire Hathaway stake.
American Express: 7.6% of invested assets ($ 24,219,809,325)
Credit services giant American Express (NYSE: AXP) is the third oldest position in Berkshire Hathaway’s portfolio, and also one of Buffett’s best long-term investments. AmEx was initially added in 1993, and its base cost is $ 8.49 per share. Not too bad, considering that it closed last week at almost $ 160 a share.
The American Express buying thesis is very similar to that of bank stocks. The duration of economic expansions is disproportionately longer than that of contractions and recessions. This means that a company like AmEx, which benefits from an increased number of merchant transactions and increased spending, will thrive as the US and global economy grows.
Of course, American Express has another trick up its sleeve. He has always had the gift of attracting a wealthy clientele. Wealthy people are much less likely to adjust their spending habits in the event of a minor economic downturn. This means less likelihood of delinquent credit accounts and a faster rebound from economic downturns for American Express, compared to many of its peers.
It doesn’t sound like a record, but American Express is also analyzing what has become a big dividend for Berkshire Hathaway. Even though AmEx only earns 1.1%, its base annual payment of $ 1.72 equates to a return of 20.3%, based on Berkshire’s initial cost.
Coca-Cola: 7.2% of invested assets ($ 22,656,000,000)
Fourth and last is the beverage giant Coca Cola (NYSE: KO). Of the 46 titles currently held by Berkshire Hathaway, Coca-Cola is the oldest at 33.
Similar to Apple, Buffett probably appreciates Coca-Cola for its geographic reach and exceptional branding. Coke sells its products in all but two countries of the world (North Korea and Cuba) and has more than 20 beverage brands generating at least $ 1 billion in annual sales. In addition, it controls 20% of the cold drink market in developed markets, which provides very predictable cash flow, and holds a 10% share of cold drinks sold in emerging markets, where the company can gain potential. higher growth in the future.
It is also one of the most recognized brands in the world. Coke sparked its omnichannel presence by using social media and relying on well-known brand ambassadors to engage with multiple generations of consumers.
But what Buffett would love most about Coca-Cola is the insane dividend his company receives every year. At first glance, Coke’s base annual payment of $ 1.68 doesn’t look so impressive. But when you factor in that Berkshire’s cost base is around $ 3.25 per share, the Omaha Oracle cost return is closer to 52%! In other words, Buffett doubles his initial investment in Coca-Cola every two years, thanks only to the dividend.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.