Warren Buffett's Berkshire Hathaway has arguably become the most closely watched stock portfolio. Investors look forward to the quarterly 13F filings with the SEC and track his team's purchases and sales over the previous quarter.
This has become especially true for Berkshire's three largest holdings -- Apple (AAPL 1.27%), Bank of America (BofA) (BAC -0.13%), and Chevron (CVX 0.44%). Fortunately for investors, Buffett has added to these holdings in recent quarters, increasing the likelihood that they could be suitable for many average investors.
1. Apple
Today, one can scarcely discuss Berkshire Hathaway without talking about Apple. At just under 900 million shares, it is worth more than $130 billion and comprises almost 40% of Berkshire's publicly traded holdings. Such a large position is unusual for an investor who has advocated for diversification throughout his career.
Apple's attributes are too numerous to name, but a surprisingly conservative balance sheet likely drew Buffett. The company claims about $169 billion in liquidity, a holding that can take Apple through just about any possible storm.
Another factor is the enduring popularity of the iPhone. More than 15 years after the release of the first version, it remains quite popular and accounts for 52% of Apple's revenue. In fiscal 2022 (which ended Sept. 24), that revenue came in at a staggering $394 billion, growing 8% from fiscal 2021.
Admittedly, that growth rate is down from the 33% revenue growth rate in fiscal 2021. Like other tech companies, it has faced slowing sales growth and supply chain issues. Consequently, Apple stock is down by about 20% over the last year.
Does that present an opportunity to buy the dip? Maybe. Its price-to-earnings (P/E) ratio stands at about 24, well below the peak but above pre-pandemic levels, when the earnings multiple rarely exceeded 20.
But even if it remains slightly expensive, the enduring popularity of the iPhone and solid balance sheet should keep Apple entrenched in Berkshire's portfolio.
2. Bank of America
Investors should also take note of Buffett's second-largest holding, Bank of America. At just over 1 billion shares, this $37 billion stake makes up around 11% of Berkshire's portfolio.
This interest in BofA and banking in general should not surprise investors. Buffett's longtime holding in American Express and past affinity for Wells Fargo show he has taken an interest in the sector throughout his career. This means that Buffett understands the banking, investment, and financial risk management products it offers.
Also, one might think economic struggles would hurt BofA and its peers. Admittedly, it could see rising delinquencies as some borrowers struggle to make debt payments.
However, the company can likely profit as rising interest rates deliver more interest revenue from higher-interest originations and variable-rate lending products. In the third quarter, net interest income surged higher by 24% year over year. This contributed to an 8% increase in revenue over that period, which came in at $24.5 billion.
But despite that performance, BofA has not escaped the struggling economy. Its stock has fallen by about 19% over the last year.
Does that mean that investors should consider BofA? They likely should. At a P/E ratio of 12, its multiple is below five-year averages. And with no end in sight to the higher interest rates, the drop in the stock is likely to go down in history as a temporary setback.
3. Chevron
Due to the focus on renewable energy, the choice of Chevron might come as a shock. Indeed, Chevron has invested more heavily in renewable natural gas recently.
But while renewables receive extensive coverage on Chevron's website, oil and gas continue to drive profitability for the company. About 68% of U.S. energy usage is petroleum and natural gas, according to the Energy Information Agency. That continuing need for traditional energy sources bodes well for the energy giant.
Investors should also take note of the Dividend Aristocrat status it earned through 35 consecutive years of payout hikes. Chevron shareholders now receive $5.68 per share annually in dividends. This amounts to a cash return of 3.1% for new buyers, well above the S&P 500's 1.7% average.
Indeed, cash generation is one of Chevron's more notable attributes. From its $67 billion in revenue in the third quarter of 2022, it reported more than $12 billion in free cash flow. That easily funded the nearly $3 billion in dividend costs.
Also, since the stock surged by almost 60% over the last year, one can see why Buffett has steadily added shares. Those 165 million shares are worth about $30 billion, about 9% of Berkshire's portfolio.
And despite that increase, its 10 P/E ratio is not far above its multiyear lows. That earnings multiple, along with the dividend, could lead to Buffett and others adding more shares.
