Warren Buffett is regarded as one of the greatest investors of all time for good reason. His Berkshire Hathaway (BRK.A -0.28%) (BRK.B -0.31%) conglomerate nearly doubled the annual return of the S&P 500 over almost 60 years, making early investors fabulously rich.
Buffett and Berkshire once again beat the market in 2022. With trading now completed for the calendar year, Berkshire Hathaway actually generated a gain, easily beating the S&P 500, as this chart shows.
Buffett is regarded as both a top stock picker and capital allocator, and Berkshire's outperformance was driven by both its stock holdings and its subsidiaries, including insurance company GEICO, railroad BNSF, and dozens of smaller businesses.
So how did Buffett's top stocks do in 2022? You might be surprised. Here are Berkshire's top five holdings.
Berkshire's top five holdings span four separate industries, including technology, financials, energy, and consumer staples, and the performance of those five stocks varied broadly. An equally weighted portfolio of all five of those stocks would have fallen slightly last year, down less than 1%, which still easily beat the S&P 500. Let's take a look at how each one of these stocks performed and what Buffett likes about them.
1. Apple
Berkshire first started buying Apple (AAPL 0.07%) in 2016, and the company has aggressively increased its ownership of the iPhone maker since then. Apple now makes up more than 40% of Berkshire's stock portfolio, and it owns roughly $120 billion of Apple stock.
Buffett has lauded the tech giant several times, saying, "It's probably the best business I know in the world."
In 2022, Apple underperformed the S&P 500, but it actually beat the Nasdaq Composite and its fellow FAANG stocks. In recent months, the stock has fallen due to a production slowdown in China, but demand for its latest iPhones is still strong, and the company continues to generate huge profits.
2. Bank of America
For years, Buffett's favorite bank was Wells Fargo, but Berkshire dumped all of its Wells shares in the wake of its phony account scandal. Now, Bank of America (BAC -1.40%) is Buffett's clear favorite in the banking sector, and he's a big fan of CEO Brian Moynihan. Buffett called him "the most underestimated banking executive in the country."
He's also credited Moynihan for his stewardship of Bank of America, the nation's No. 2 commercial bank by assets.
Like most of the financials sectors, which are cyclical, Bank of America underperformed the S&P 500, but it seems well prepared for volatility in 2023, as Moynihan has built a culture of "responsible growth" and is only predicting a mild recession in 2023.
3. Chevron
Buffett's biggest wins this year have come in the energy sector, as surging oil prices have driven booming profits in producers like Chevron (CVX 0.64%).
Berkshire bought shares of Chevron and Occidental Petroleum aggressively, a sign he is bullish on the oil sector. He also seems to like Chevron's management team and sees it as undervalued.
Chevron currently trades at a price-to-earnings ratio of 10, and the stock offers a dividend yield of 3.2%. Though oil prices have come down from their peak, they're still elevated, and if they remain that way, which seems likely if the war in Ukraine persists, Chevron could have another bumper year in 2023.
4. Coca-Cola
Coca-Cola (KO 0.60%) has been a longtime favorite of Buffett's and in many ways represents a classic Buffett stock. The company has a well-recognized, global brand; competitive advantages with its distribution network and marketing muscle; and established relationships with restaurants, retailers, and convenience stores.
Buffett once mused that if you gave him $100 billion to take away Coca-Cola's beverage leadership, he would give it back to you and say it couldn't be done.
Coca-Cola outperformed the market in 2022, as the company delivered solid results and benefited from its status as a consumer defensive stock, meaning customers buy its products regardless of the state of the broader economy.
5. American Express
Finally, American Express (AXP -0.63%) has been a longtime favorite of Buffett's as well. Buffett appreciates the credit card company's higher credit quality. He also likes its well-respected brand, which drives fees from cardholders, as well as the company's management team.
In addition to making profits from credit card loans, American Express also runs its own payments network, which is actually its biggest revenue contributor.
Despite macro headwinds, AmEx saw 24% growth in network volumes this year, showing that payments are bouncing back from the pandemic. American Express currently trades at a reasonable price-to-earnings valuation of 15 and pays a dividend yield of 1.4%.
Should you follow Buffett?
While Berkshire's top five holdings did beat the market in 2022, one year isn't enough to judge a stock's performance, and Buffett would likely say as much, as he has said that his favorite holding period is forever when the right conditions are met.
Berkshire owns these stocks because Buffett believes they have sustainable competitive advantages. They're also diversified. They all pay dividends, and trade at reasonable valuations.
If you want to invest like Buffett, you can make things easy on yourself and buy Berkshire stock, or apply some of Buffett's ideas to your own portfolio in 2023.
