Warren Buffett is the best investor ever in many people's eyes, and the CEO of Berkshire Hathaway (BRK.A -0.64%) (BRK.B -0.81%) draws thousands of shareholders to Omaha every year to get his latest wisdom and insight. Yet as Buffett himself might say, when it comes to investing, actions speak louder than words, and watching what actions Buffett takes with Berkshire Hathaway's portfolio of stocks can be a great guide for investors looking for smart investment ideas.
Some investors would say that a true stock pick has to be a new idea. But holding onto an existing position in a stock requires the same commitment and belief in its future growth, and as of its latest report, Buffett had almost $135 billion of Berkshire Hathaway's capital invested in just three stocks. Below, we'll look at these three picks along with some thoughts about why Buffett continues to keep them among Berkshire's holdings.
Apple (AAPL 0.68%) is by far Buffett's biggest pick, with Berkshire Hathaway's stake in the tech giant approaching $80 billion in value. Yet it's also a relatively recent choice from the Oracle of Omaha, who in general was slow to embrace technology stocks. Apple shares first appeared in Berkshire's portfolio in 2016, and it wasn't until 2018 that Buffett seemed to get his fill of the iPhone maker's stock.
It might seem hard to believe now, but at the time, Apple looked like a value play. Shareholders were concerned that the tech giant seemed to have no plans for future growth as the iPhone franchise aged, and with the stock trading below $100 per share, Buffett was early in his prescient belief that Apple's market capitalization would hit the $1 trillion mark.
Apple's stock has given a big upward boost to the value of Berkshire's portfolio, as the share price has doubled in the past year. Some now see Apple's days of being a value stock as being over, but even with a richer valuation, shares of the tech company still offer investors the chance to participate in the cash cow of iPhone sales along with rising businesses in wearables and services offerings.
Bank of America
Bank of America (BAC 1.54%) has also become an important holding for Berkshire in the past couple of years. Buffett's relationship with B of A dates back to 2011, when Berkshire invested $5 billion in the bank. In exchange, Berkshire took preferred shares and warrants to purchase common stock in the future. Buffett decided to exercise those warrants in 2017, and that made Berkshire the owner of 679 million shares of B of A's stock all at once. Since then, that stake has grown to nearly 950 million shares worth almost $33 billion.
Buffett's move corresponded with Bank of America's decision to boost its dividend to a level that exceeded what his preferred stock position was generating in income for Berkshire. At the time, he said that he saw further share-price appreciation possibilities for B of A as well, especially as regulatory and litigation-related expenses diminished and conditions in the financial industry improved. Going forward, B of A should keep generating plenty of dividend income for Berkshire, along with further potential for stock price gains.
Unlike the other two stocks on this list, Coca-Cola (KO 0.34%) has been a longtime holding of Warren Buffett's. Berkshire's 400 million share stake in the beverage giant dates back to 1994, and it's worth nearly $23 billion at current stock prices. Coca-Cola has been a big winner for Berkshire, as the insurance giant spent an estimated $1.3 billion in building its position. Moreover, Coca-Cola's nearly 3% dividend yield provides a nice stream of income for Berkshire and other shareholders in the beverage company.
Many see Coca-Cola as having lost its edge, but the company has recently responded to changing consumer tastes by adding healthier alternatives to its namesake sugary carbonated cola. Sparkling water, juices, energy drinks, and lower-sugar soft drinks have all resonated with customers, and that produced a solid 20% gain for the stock in the past year. Berkshire investors can expect the company to hold onto its shares for the long run -- and for Buffett to keep a can of Coke near him at shareholder meetings for the foreseeable future.
Looking up in 2020
Warren Buffett believes in holding stocks as long as possible, so he doesn't think of making stock picks for periods of just a single year. But for those looking for new ideas to invest in for 2020, these three stocks still have plenty to recommend them -- above and beyond the seal of approval from the Oracle of Omaha.