Warren Buffett's stock-picking prowess has made his company, Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B), one of the world's biggest investment firms. Buffett's unshakable commitment to long-term investing makes Berkshire Hathaway a coveted shareholder, particularly at Bank of America (BAC 0.90%), Wells Fargo (WFC 1.53%), American Express (AXP 0.57%), Coca-Cola (KO +0.28%), and Kraft Heinz (KHC +1.12%).
Betting big on banks
Buffett loves simple, easy-to-understand businesses that generate significant cash flow, so it's probably not surprising he's accumulated massive stakes in some of the world's biggest banks, including Bank of America.
IMAGE SOURCE: The MOTLEY FOOL.
Bank of America's big bet on mortgages in the 2000s left it exposed to significant risks exiting the Great Recession, causing a sharp dip in its liquidity and, correspondingly, its share price. In 2011, it cut a deal with Buffett to bolster its financials, pocketing $5 billion in exchange for preferred stock and warrants for 700 million shares at the rock-bottom price of $7.14 per share.
Fast-forward to today, and Berkshire Hathaway now owns 896.2 million shares worth nearly $26 billion, making it Bank of America's biggest shareholder. Supporting Bank of America during its time of need may go down in history as one of Buffett's best decisions. Berkshire's stake is worth roughly $24.7 billion, and his cost basis is only $11.6 billion.
A 409 million-share stake also makes Berkshire Hathaway the single largest owner of Wells Fargo. As of late, the West Coast bank's board of directors probably has appreciated Buffett's buy-and-hold approach. In 2016, many investors sold their Wells Fargo shares following news that employees were opening fraudulent accounts to pocket bonuses. Despite the negative headlines, Buffett stayed the course, maintaining ownership of over 9% of its outstanding shares.
Wells Fargo CEO Tim Sloan recently resigned, and Buffett's on record saying that its next CEO should be someone who can restore confidence with consumers and regulators and thus shouldn't come from Wall Street. Buffett's commitment to the bank throughout its scandal makes it difficult to imagine that Wells Fargo won't follow his advice or that Buffett plans to sell his shares anytime soon.
Yet another massive bet from Buffett on the U.S. financial system is American Express. Berkshire owns 151.6 million shares in the business credit company, enough to make it Berkshire's fifth largest position. Buffett usually keeps Berkshire's ownership of companies beneath 10% to avoid regulatory requirements, but American Express is an exception. Berkshire Hathaway is American Express' biggest owner, too, with a 17.9% stake worth about $16.6 billion.
Cozy up to consumer goods
In addition to being a big fan of banks, Buffett has a penchant for consumer-goods companies. Berkshire Hathaway owns 400 million shares of Coca-Cola worth a whopping $19.8 billion. As a result, Berkshire is Coca-Cola's single largest investor.
This position dates to 1988, when Buffett secured 6% ownership of Coca-Cola for about $1 billion. In keeping with his bargain-hunting ways, his purchase followed the stock market crash in 1987, a swoon that lopped nearly 30% off the S&P 500 over 39 trading days.
Coca-Cola's performance has been impressive since then. Despite fierce competition, management's willingness to adjust to changing consumer tastes has resulted in big gains for Buffett. For instance, successful brands such as Honest Tea, Minute Maid, and Dasani helped Coca-Cola's share price nearly double over the past 10 years. Selling now would trigger a steep tax bill, so I suspect Buffett will remain the beverage company's largest shareholder for a while.
Berkshire Hathaway is also the top owner of packaged-food giant Kraft Heinz. It owns 325,442,152 shares, following Buffett's support of Kraft's merger with Heinz in 2015. The tie-up united a bevy of top products under one roof, including namesake brands and brands such as Oscar Mayer, Planters, Jell-O, and Velveeta.
Now, however, Buffett may be questioning his backing of the combination. A shift toward healthier, organic food brands has taken a toll on legacy product sales, causing revenue to flatten and prompting management to take a $15.4 billion goodwill writedown in February. Berkshire Hathaway is entitled to 26.7% of Kraft Heinz's after-tax operating profit, so Kraft-Heinz's poor operating performance so far has probably been especially disappointing to Buffett.
Kraft Heinz shares have tumbled this year because of the impairment charge, a cut to Kraft Heinz's dividend, and the departure of its CEO, but the position is still worth about $10.6 billion. Given Buffett's long-haul thinking, he'll probably remain its biggest owner, at least to see if new management can kick-start sales.
Follow in Buffett's footsteps?
Since Berkshire Hathaway is already the largest investor in Bank of America, Wells Fargo, American Express, Coca-Cola, and Kraft Heinz, it's unlikely Buffett will be buying more shares. Instead, it's more likely he'll trim positions every quarter to keep corporate share buybacks from inflating his ownership.
Nevertheless, following Buffett's lead and owning these stocks in portfolios could still be smart. All of these stocks pay dividends, and reinvesting those dividends can result in market-beating performance over time.
