Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) CEO Warren Buffett has developed quite the following on Wall Street. That's because his company has averaged... averaged... an annual return of 20% since the mid-1960s. In aggregate, we're talking about a return of more than 2,800,000% through the end of 2020.
While there are a lot of reasons Buffett has been such a successful investor, his ability to spot businesses with clear-cut competitive advantages and his willingness to hold onto these stakes for very long periods of time have led to massive returns. Not taking into account dividend payments, the Oracle of Omaha is sitting on unrealized gains in the following six stocks of at least 1,000%!
Coca-Cola: Up 1,553%
Beverage-giant Coca-Cola (NYSE:KO) is Berkshire Hathaway's longest-held stock. It was initially purchased in 1988, and Buffett and his investing team have a cost basis around $3.25 a share. With Coke closing on June 18 at $53.77, Berkshire is relishing an unrealized gain of just over 1,550%.
Additionally, Coca-Cola has raised its dividend in each of the past 59 years. Based on its base annual payout of $1.68 in 2021, Berkshire Hathaway will collect $672 million in dividend income this year. And here's the kicker: This represents a nearly 52% yield, based on the company's original cost basis.
It's highly unlikely that Coca-Cola will ever be sold as long as Warren Buffett is in charge. It's a company with exceptionally strong global brand recognition, a top-notch marketing team, and a presence in all but two countries worldwide (North Korea and Cuba). With 20% of developed-market cold-beverage share and 10% of emerging-market cold-beverage share, Coke's cash flow is as steady as they come.
Moody's: Up 3,370%
Credit ratings and analytics company Moody's (NYSE:MCO) has also put a pretty penny in the Oracle of Omaha's pockets. According to Berkshire Hathaway's annual shareholder letter, Buffett's company has a cost basis on Moody's of just $10.05. Since it was spun-off from Dun & Bradstreet in 2000, Moody's shares have climbed to almost $349. This works out to an unrealized gain of 3,370%!
Buffett is also making bank as a result of Moody's dividend growth. While its current yield of 0.7% is enough to make even modest income seekers yawn, the $2.48 base annual payout works out to a nearly 25% yield, based on Berkshire Hathaway's initial cost basis. For that reason alone, Moody's is also unlikely to be sold as long as Buffett is around.
Make no mistake, there have been financial reasons to be optimistic about Moody's, too. Historically low lending rates have encouraged public companies to issue debt, which is keeping Moody's ratings division busy. Meanwhile, market volatility offers the potential to deliver sustained double-digit growth for Moody's analytics segment.
American Express: Up 1,763%
Here's a fun fact to impress all your party guests: 112 million Americans weren't even alive the last time Warren Buffett didn't own payment-processing company American Express (NYSE:AXP) in Berkshire Hathaway's portfolio. Purchased in 1993, Berkshire sports a cost basis of just $8.49 on AmEx. Considering it closed this past weekend at just north of $158, Buffett's company is sitting on an unrealized gain of 1,763%.
Not to sound like a broken record, but the Oracle of Omaha is also receiving one heck of a payback from American Express on the dividend front. AmEx's current base annual payout is $1.72 (a 1% annual yield). But relative to Berkshire Hathaway's cost basis, Buffett is pocketing a 20% yield on cost. Not too shabby for being patient!
AmEx's success can be pinned on it benefiting from long periods of economic expansion, as well as its uncanny ability to court affluent clientele. The well-to-do are far less likely to significantly reduce their spending when minor economic hiccups arise. That often means predictable cash flow for American Express and a generally quick rebound from recessions.
BYD Co.: Up 2,789%
Unquestionably, the most under-the-radar outperformer for Berkshire Hathaway has to be electric-vehicle manufacturer BYD. Buffett owns the H-Class shares (OTC:BYDD.F) -- he acquired 225 million shares of the Chinese EV producer in 2008 for an average price of $1.03 a share and has since seen those shares climb to nearly $30. That's just your run-of-the-mill 2,789% unrealized gain in roughly 13 years.
Although BYD doesn't play a dividend, Buffett is enjoying the fact that his company got in on the ground floor of the EV shift in China. According to the Society of Automotive Engineers of China, half of all new vehicles sales in 2035 will feature alternative energy, 95% of which are expected to be EVs. China is the largest auto market in the world, which gives BYD a really good chance to carve out substantial market share.
Initial results have been promising. In May, the company sold 32,800 EVs and plug-in hybrids, 18,711 of which were EVs. Looking just at EVs, this was a 126% increase from May 2020. With growth like this, Buffett's investment lieutenants, Todd Combs and Ted Weschler, are liable to encourage the Oracle of Omaha to hold this position even longer.
Mastercard: Up approximately 1,400%
Another quadruple-digit gainer for Buffett's portfolio is payment-processor Mastercard (NYSE:MA).
Whereas Berkshire Hathaway discloses its cost basis on its top 10 or 15 holdings every year, it doesn't do the same for its smaller holdings by market value, which is where Mastercard finds itself. What we do know is that Buffett and his team began gobbling up shares in the first quarter of 2011. During that quarter, Mastercard was valued between $22 and $25, on a split-adjusted basis. If we just arbitrarily say that $24 is the average buy-in for these shares, Berkshire Hathaway is sitting on an unrealized gain of more than 1,400%, as of this past weekend.
Similar to AmEx, Mastercard is a beneficiary of long-winded bull markets. Even though recessions are inevitable, they last for short periods of time, compared to economic expansions. As the No. 2 in credit card network-purchase volume in the U.S. (the largest market in the world for consumption), Mastercard finds itself in an enviable position to take advantage of increased consumer and enterprise spending.
Visa: Up approximately 1,000%
Finally, to round things out, we have Mastercard's big brother, Visa (NYSE:V). Like Mastercard, Visa is a smaller holding for Berkshire Hathaway, which means there's no specific cost-basis information.
What we do know is that the Oracle of Omaha and his team acquired shares in the third quarter of 2011. During that time, Visa shares could be purchased for between $19 and $23, on a split-adjusted basis, with an average price during the quarter around $21. Assuming this average is accurate, Berkshire is sitting on an unrealized gain of about 1,000%.
The really interesting differentiator for Visa and its peer Mastercard is their choice to avoid lending. While some of their processing peers also lend (AmEx), and are therefore able to generate interest and fee-based income during periods of expansion, these lenders are also exposed to credit delinquencies during economic contractions and recessions. By not lending, Visa and Mastercard don't have to set aside cash to cover delinquencies, which is why they rebound more quickly than other financial stocks after a recession.
Visa is also the clear kingpin in the U.S. market. As of 2018, Visa controlled 53% of U.S. credit card network-purchase volume. It also closed on the acquisition of Visa Europe in 2016. In short, there's ample opportunity for Visa to continue growing by a low double-digit percentage on an annual basis.