When it comes to making money in the stock market, Berkshire Hathaway (BRK.A -0.66%) (BRK.B -0.63%) CEO Warren Buffett is arguably in a class of his own. Since taking over as CEO in 1965, Buffett has seen his net worth balloon to more than $115 billion, all while creating approximately $700 billion in value for shareholders (including himself).
Buffett's success has made riding his coattails a popular investing strategy. In other words, if the Oracle of Omaha is building a position in a company, Wall Street and retail investors may be more inclined to do the same, given his track record.
Thankfully, Form 13F filings with the Securities and Exchange Commission give us a proverbial look under the hood every three months at what Buffett and his team have been up to. Looking back at multiple 13F filings from Berkshire Hathaway, as well as the company's quarterly filings, one thing becomes very clear: Buffett can't stop buying the following three surefire stocks.
Bank of America
Although the latest 13F filing from Berkshire Hathaway showed no increase in ownership of money-center giant Bank of America (BAC -2.48%), the needle has been pointing decisively higher for years. Buffett's company ended 2017 owning 679 million shares of BofA. By the end 2019, this had increased to 925 million shares. As of the close of 2021, Berkshire owned 1.01 billion shares.
Normally, Berkshire Hathaway aims to keep its stakes in banks below 10% of their outstanding shares. The reason this is done is to avoid being labeled a bank holding company (BHC). If Berkshire were labeled a BHC, there would be increased oversight and potential trading restrictions placed on the company.
However, the Oracle of Omaha was granted approval by the Federal Reserve Bank of Richmond in 2020 to increase his company's stake in Bank of America to as much as 24.9% without being labeled a BHC. Buffett has obliged by continuing to add to Berkshire's position in the company, which was recently worth as much as $50 billion.
Aside from Buffett loving bank stocks, the primary lure of Bank of America as an investment is its interest rate sensitivity. No money-center bank is more sensitive to shifts in the interest rate yield curve than BofA. The company noted in its fourth-quarter operating presentation that a 100-basis-point parallel shift in the interest rate yield curve would generate an estimated $6.5 billion in added net interest income.
I mention this added interest income because the U.S. is facing its highest inflation rate in 40 years, and the nation's central bank appears poised to raise interest rates multiple times in 2022. As rates move up, BofA will net more from its outstanding variable-rate loans.
Buffett is also a big fan of management teams that reward their patient shareholders. Although Bank of America requires approval from the Federal Reserve to return capital to shareholders, CEO Brian Moynihan has a rich history of green-lighting hefty share buyback programs and dividend increases.
At the end of June 2020, Berkshire Hathaway held no shares of Verizon. But six months later, when the curtain closed on one of Wall Street's wildest years on record, Buffett's company owned close to 146.7 million shares. As of Dec. 31, 2021, this position had grown to approximately 158.8 million shares. In a relatively short time frame, Verizon has become a top-seven holding.
The "why?" behind these big buys in Verizon likely has to do with the company's market-topping payout. With Buffett's company sitting on a mountain of cash, and equities both pricey and volatile in the latter half of 2020, the Oracle of Omaha may have thought that a prudent use of capital was to invest in the minimally volatile Verizon in order to take advantage of its superior dividend. Verizon's current 4.8% yield translates into more than $406 million in dividend income annually for Berkshire Hathaway.
But just because Verizon is growing considerably slower than it was during its heyday, it doesn't mean the telecom giant is without growth catalysts. For instance, the ongoing rollout of 5G wireless infrastructure should provide an organic sales boost through at least mid-decade, if not beyond.
It's been a decade since consumers and businesses enjoyed a sizable upgrade to wireless download speeds. Thus, the 5G revolution should encourage a multiyear product replacement cycle. Since Verizon generates a sizable portion of its wireless operating margin from data consumption, 5G is its no-brainer growth driver.
The company has also been an aggressive buyer of 5G mid-band spectrum. The goal is for Verizon to sign up 30 million U.S. households for 5G at-home broadband services by the end of 2023. Broadband may not be a fast-growing segment, but it generates highly predictable cash flow.
The third surefire stock Buffett can't stop buying is... his own company!
As noted, Berkshire Hathaway is sitting on a large pile of cash. Both Buffett and his right-hand man, Charlie Munger, haven't been afraid to deploy some of this cash to repurchase shares of their company since mid-2018. In total, nearly $51.1 billion was spent on share repurchases between July 1, 2018 and Sept. 30, 2021. This includes $24.7 billion in buybacks in 2020, and north of $20 billion through the first nine months of 2021.
Interestingly, the Oracle of Omaha wasn't able to repurchase any of his company's stock between 2013 and 2018. That's because there were rules in place that disallowed buybacks unless shares were below 120% of their book value. But by mid-2018, the criteria for share repurchases were tweaked. As long as Berkshire had at least $20 billion in cash and cash equivalents on its balance sheet, Buffett and Munger were free to rebuy shares if they felt those shares were trading at a sizable discount to their intrinsic value.
Of course, there's more to like about Berkshire Hathaway than just these huge buybacks. For example, Buffett and his team have assembled a nearly $345 billion investment portfolio of predominantly cyclical businesses. Even though the Oracle of Omaha is fully aware that recessions are inevitable, he understands that periods of economic expansion last far longer than contractions. Thus, he's playing a numbers game that allows patience to pay off over time.
Another reason to really like Berkshire Hathaway as an investment is Buffett's penchant for loading the investment portfolio with dividend stocks. A half-dozen stocks should provide more than $4 billion in dividend income this year, with Buffett's company on track to collect well over $5 billion in aggregate payouts in 2022.