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My 3 Biggest Stock Holdings

By Leo Sun - Updated Mar 20, 2017 at 7:05AM

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AT&T, Amazon, and Bank of America Series D are my three biggest stock holdings.

I personally believe that investors should always diversify their portfolios with investments from different asset classes. I personally own 17 stocks, one ETF, and four bonds in my portfolio, and I rarely let a single investment account for over 10% of my total holdings.

That being said, I still hold bigger positions in some stocks than others, whether it be through intentional accumulation or previous gains. Today I'll talk about my three biggest holdings -- AT&T (T 1.84%), Amazon.com (AMZN 3.58%), and Bank of America's Series D (NYSE: BAC-D) preferred shares -- and explain my reasoning for owning each stock.

A businessman checks his portfolio.

Image source: Getty Images.

AT&T

AT&T is currently my single largest position and accounts for 6.5% of my portfolio. However, it only became my largest holding after the stock rallied about 25% from my original purchase price -- which was unexpected because I initially bought the stock as an income play.

AT&T rallied over the past two years for three major reasons. First, consistently low interest rates kept income investors locked into low-risk income stocks like AT&T instead of lower-yielding bonds. Second, AT&T's purchase of DirecTV boosted its free cash flow and ushered in a new era of growth for the aging telco. Lastly, AT&T's proposed acquisition of Time Warner (TWX) indicates that it's serious about countering OTT (over-the-top) streaming competitors and cord cutters by establishing a massive media ecosystem in which it controls both the content and the pipes.

AT&T's position as the nation's top pay TV provider, top fixed telephone line provider, and second largest wireless carrier give it a massive moat that's tough for rivals to cross. Its growth looks glacial -- with analysts anticipating 1% sales growth and 4% earnings growth this year -- but its attractive forward yield of 4.6% makes it a reliable income play for uncertain times.

Amazon.com

My second largest position is in Amazon.com, which accounts for 6.5% of my portfolio. Amazon only rose to my top three holdings over the past year due to a 35% gain. When I first started accumulating Amazon shares in the lower $600s, I thought that the stock's upside potential could be limited by its valuations. Yet Amazon's growth over the past year -- particularly in its higher-margin AWS (Amazon Web Services) segment -- has convinced me that its best days are still ahead.

Amazon's AWS revenue rose 55% in 2016, and accounted for 9% of its top line. But AWS' operating income more than doubled and accounted for 74% of the company's operating profits for the full year. That growth enabled Amazon to grow its net earnings by 292% in 2016, and analysts expect its earnings to rise another 47% this year.

Amazon's Prime Air plane.

Image source: Amazon.

That bottom line growth will enable Amazon to expand its e-commerce ecosystem with new features for Prime, new smart home gadgets, and automated logistics -- all of which will likely tighten its grip around its growing customer base.

Bank of America (Series D preferred stock)

My third largest position is in Bank of America Series D preferred stock, which accounts for 6% of my portfolio. These preferred shares shouldn't be confused with the common shares, which trade under the BAC ticker.

In the unlikely event that Bank of America (BAC 0.72%) went bankrupt, the common shares could fall to zero while preferred shares would be liquidated at a predefined "par value" like a bond. The Series D is also "callable," which means that Bank of America can redeem the shares at its par value of $25 per share at any time.

The Series D's par value of $25 sets a firm floor under the stock, but it also greatly underperforms the common shares during bull markets. My Series D stock stayed nearly flat over the past 12 months, while the common stock rallied more than 80%. In retrospect, the common shares would have been a better investment, but I initially bought the Series D stock as an income play, since its 6.2% yield easily beats the common's 1.2% yield while offering the stability of a bond.

The key takeaways

AT&T, Amazon, and Bank of America Series D aren't necessarily my favorite stocks, but they reflect my long-term tactic of buying both high-yielding income stocks and high-growth ones. I don't plan to sell my AT&T and Amazon shares anytime soon, but rising interest rates may convince me to swap my Bank of America Series D shares for a long-term corporate bond with a comparable yield in the near future.

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Stocks Mentioned

AT&T Inc. Stock Quote
AT&T Inc.
T
$20.99 (1.84%) $0.38
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$116.46 (3.58%) $4.02
Bank of America Corporation Stock Quote
Bank of America Corporation
BAC
$32.31 (0.72%) $0.23
Time Warner Inc. Stock Quote
Time Warner Inc.
TWX

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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