Warren Buffett's 5 Best-Performing Stocks of the Past Year

Berkshire Hathaway (BRK.A -0.59%) (BRK.B -0.74%), the conglomerate led by Warren Buffett, has delivered strong returns for investors lately, with shares up 30% over the past year. As impressive as this is, some of Berkshire's stocks have doubled, or even tripled that return. Here's a look at Berkshire's five best-performing stocks of the past year, and why they performed so well.

Data source: Berkshire Hathaway. Note: This only includes Berkshire Hathaway positions valued at $100 million on more, and excludes stock positions initiated during the past year. Total returns include dividends paid during the year, and are current as of Feb. 16, 2017.

Why did these stocks do so well?

First of all, the reason that most of these stocks (and Berkshire itself) have performed so well over the past year is because last February was a particularly turbulent time for stocks that included a large market drop (the low point in the chart below). And now we're at or near record highs on the major market indexes. So, to put things into perspective, Berkshire's 30% gain over the past year sounds a lot less impressive when you hear that the S&P 500's total return was 28.5% over the same period.

^SPX data by YCharts.

Having said that, the stocks on this list performed exceptionally well, and did so for good reasons. For example, the two financial stocks on the list, Goldman Sachs and M&T Bank, performed well overall throughout the past year, but were big beneficiaries of rising interest rates, which tend to translate into higher profit margins for banks. In addition, banks are expected to benefit from the election results: President Trump has vowed to slash banking regulations, create job and wage growth, and is generally expected to produce a rising-rate environment for the next few years, all of which should be positive catalysts for banks.

Charter Communications popped 57% in 2016 after its major acquisitions of Time Warner Cable and Bright House Networks, which gives the company economies of scale in an industry where such an advantage is extremely important. The company continued to rise in the early part of 2017 when rumors that Charter itself might be a takeover target for Verizon started to be reported.

Restaurant Brands International, which was formed from the combination of Burger King and Tim Hortons in 2014, is simply producing very strong results. In the most recent quarter, the company's earnings grew by 38% year over year, and have beaten analyst expectations for the past five quarters. And finally, construction materials company USG has had an excellent year in terms of revenue growth, margin expansion, and overall profitability. The company has also done a good job of deleveraging its balance sheet, adding to its long-term financial strength.

Image Source: Getty Images.

Buffett's best-performing stock isn't even on this list

This discussion wouldn't be complete without mentioning Bank of America (BAC 0.45%), which has delivered a 107% total return over the past year. The reasons for the bank's strong performance are similar to those I mentioned for Goldman Sachs and M&T Bank, so why didn't I include it on the list?

The reason is simple. Berkshire Hathaway has a large investment in Bank of America, but doesn't own any shares – not yet, anyway.

In the wake of the financial crisis, Berkshire made an investment in Bank of America preferred stock, which also included warrants to buy 700 million shares for $5 billion ($7.14 each) before September 2021. Buffett has said that Berkshire values this investment highly and intends to exercise those warrants just prior to expiration, which would actually make Bank of America one of Berkshire's largest investments. However, because the investment only exists in the form of warrants at this time, it cannot be referred to as one of Berkshire Hathaway's stock investments, but is important for Buffett followers to know about.