Warren Buffett turned 90 late last year. The stock-picking giant has a loyal following within the investment community. The Berkshire Hathaway (BRK.A 0.41%) (BRK.B 0.11%) CEO still plays an instrumental role in guiding the investment decisions of his conglomerate, albeit with help from investment managers who might eventually take his place.
Buffett has a huge amount of capital at his disposal, and he's not afraid to make big bets. As of his most recent report, Berkshire had more than $150 billion invested in just three stocks. Although they're not new stock picks, the fact that Buffett still has confidence in these companies is a recommendation in itself. Here's a countdown of Buffett's three favorite stocks for 2021.
Buffett has always said that his favorite holding period is forever, and Coca-Cola (KO -0.22%) is a true long-term buy-and-hold play for Buffett. Berkshire has had the same 400 million share position in Coca-Cola for more than 25 years, and even the stock's lackluster performance in the past year hasn't prompted any change in the insurance giant's stance toward the $19 billion holding.
Coca-Cola didn't do very well for Berkshire in 2020, with its share price falling 1%. Moreover, it's off to a terrible start in 2021, having fallen more than 10% in just the first few weeks of the year. Skeptics point to stagnant earnings and a rich valuation without huge prospects for future growth.
However, Coca-Cola does check some boxes on Buffett's list. A 3.4% dividend yield keeps cash flowing into Berkshire's coffers. While the beverage giant might not be a top growth stock, it has a loyal following that protects it from economic downturns as well. In a frothy market, that might be exactly the kind of ballast Buffett wants among his other holdings.
2. Bank of America
Buffett shocked many investors in 2020 when he made massive sales of some of his largest positions. Airline stocks got the ax following their coronavirus crisis collapse, and Berkshire dramatically slashed its allocation to financial stocks. Many long-held positions, including Goldman Sachs (GS 1.80%), JPMorgan Chase (JPM 1.10%), and Wells Fargo (WFC 1.54%), either got sold entirely or saw big reductions.
That makes Buffett's ongoing commitment to Bank of America (BAC 0.98%) all the more meaningful. Berkshire still has more than 1 billion shares of the banking giant, worth about $31 billion at recent prices. That's actually up from his total investment this time last year, and Buffett's nearly 12% stake in B of A comes with the added requirements of maintaining a bank position above the 10% mark.
Bank of America did even worse than Coca-Cola in 2020, falling 14% in a terrible environment for bank stocks. But Buffett has been optimistic about the longer-term prospects for the financial industry, and B of A now pays a dividend yield above 2.25%. With banks looking to restore their stock buyback activity now that the worst of the COVID-19 pandemic appears to be behind us, Bank of America could return to the impressive path higher it has taken since the financial crisis more than a decade ago.
The benefit of the Buffett long-term investing approach is that when he finds a winner, it can pay off handsomely. Apple (AAPL 0.74%) has been a huge winner for the Oracle of Omaha. Berkshire's 944 million share stake in Apple makes up almost half of all of its publicly traded stock holdings, and it's worth more than $135 billion at recent prices.
Recently, Buffett has looked at Apple as a source of funds for investing in other ideas. For instance, in the most recent quarter, Berkshire sold about 36 million shares of Apple, helping it take new positions in pharmaceutical stocks like Bristol Myers Squibb (BMY 0.30%), AbbVie (ABBV 0.89%), and Merck (MRK -0.12%).
Yet even with modest trimming, Berkshire doesn't seem to have any doubts about Apple's long-term staying power. Investors shouldn't necessarily count on a repeat of the extremely strong performance that has sent Apple shares soaring more than 275% in just the past two years. Yet with the success of the 5G-enabled iPhone 12 signaling the beginning of another huge upgrade cycle for the mobile device giant, Apple still has upside.
Keep your eyes on Omaha in 2021
The stock market can go up one year and down the next, but over time, Warren Buffett's stocks have done extremely well. That makes watching Apple, Bank of America, and Coca-Cola in 2021 worthwhile to see what comes next for the three most influential stocks in Berkshire Hathaway's portfolio.