In his most recent letter to Berkshire Hathaway shareholders, CEO Warren Buffett laid out an important bit of investing wisdom: "The weeds wither away in significance as the flowers bloom." He also noted that it really only takes a few spectacular winners to deliver strong returns and work wonders for a portfolio.
Given that Berkshire's share price has climbed more than 2,598,000% since Buffett acquired the business and became its CEO in May 1965, it's no stretch to say the Oracle of Omaha knows what he's talking about. Had you owned $1,000 worth of the company's stock then, it would now be worth nearly $26 million.
With Buffett's incredible track record of investing success in mind, read on for a look at five stocks held by Berkshire Hathaway that have what it takes to power your own portfolio to market-beating returns.
Image source: The Motley Fool.
1. Apple
Apple (AAPL 0.64%) is the world's largest publicly traded company and one of its most profitable businesses. With such incredible brand strength and consistently great earnings generation, it's little wonder that the stock is so beloved by Buffett. In fact, Apple stands as Berkshire's largest stock holding and accounts for approximately 39% of the investment conglomerate's total equity portfolio.
To put Apple's industry-dominating performance in perspective, Counterpoint Research estimates that the company captured roughly 85% of total operating profits in the global smartphone market last year. Generating 85% of annual operating profits in any industry is an utterly astounding feat. It's even more eye-catching in the phone space because there are many other device manufacturers out there. Hardware devices also typically suffer from commodification trends that depress margins for all players involved and make it difficult for any single operator to run away with such commanding market share.
Apple managed to defy commodification trends through design expertise and product innovation and refinement. Essentially, the company has built a lifestyle brand into and around its technology products and services, and this brand resonates with an incredibly wide and loyal audience.
2. Amazon
Compared to Apple, Amazon (AMZN 1.30%) represents a minuscule part of Berkshire's overall stock portfolio. The e-commerce and cloud computing giant accounts for less than 1% of the equity holdings of Buffett's company. But if you're looking for great tech stocks that have Berkshire's backing, Amazon stock has the makings of a great long-term buy -- particularly on the heels of recent sell-offs.
AMZN PS Ratio (Forward) data by YCharts
In addition to the impact that inflation and other macroeconomic pressures have had on the company's share price, Amazon has also been posting growth that's much slower than investors have become accustomed to in light of these headwinds. But even with the growth slowdown, the stock looks opportunistically valued trading at approximately 1.7 times this year's expected sales, and the stock's roughly 50% pullback from its high presents a worthwhile buying opportunity for long-term investors.
While Amazon's core e-commerce and cloud infrastructure segments are both facing elevated costs and diminished growth opportunities in the near term due to challenging economic conditions, there's a good chance these challenges will eventually dissipate. When they do, there's also a good chance Amazon will still have its leading positions in these highly influential industries and return to posting stronger sales and earnings growth.
3. Snowflake
It's been said that no two snowflakes are exactly alike, and in some respects, Snowflake (SNOW 2.69%) is also unlike any other company held in the Berkshire Hathaway portfolio. With the data-services specialist trading at approximately 16 times expected sales even after its stock has fallen 66% from its peak level, it certainly has one of the most unusual valuation profiles of any companies that the investment conglomerate owns a stake in.
SNOW PS Ratio (Forward) data by YCharts
While the company's forward price-to-sales multiple might look staggering, it's worth noting that the business recorded a non-GAAP (adjusted) free cash flow margin of 25% last fiscal year and it expects to record approximately the same margin this year as well. With Snowflake posting 70% product-revenue growth last year and guiding for 40% growth this year even in the face of significant macroeconomic pressures, the company's valuation begins to look less daunting.
Even though Snowflake's valuation looks atypical for a Berkshire portfolio component, it does have elements that are in line with classic, Buffett-style investing. Snowflake is a leader in data warehousing technologies that make it easy for customers to combine and analyze data from otherwise walled-off cloud-infrastructure services, and it appears to be building a powerful moat in this category.
4. Paramount Global
Paramount Global (PARA 2.91%) was one of just a handful of stocks that Berkshire bought in the fourth quarter, the others being Apple, Occidental Petroleum, and Louisiana Pacific. Why did the investment conglomerate identify the media company as one of the best buys on the market last quarter? The investment conglomerate hasn't given a detailed breakdown on the rationale for the recent purchase, but it looks to be a classic, Buffett-style value play.
PARA Price to Book Value data by YCharts
With Paramount trading at a price-to-book value of roughly 0.6 despite some emerging growth catalysts for the business, Buffett and his portfolio managers and analyst teams may see signs that the stock is trading below its intrinsic value. The company is also valued at less than 50% of expected forward sales, 14 times trailing earnings, and 26 times expected forward earnings for this year.
In addition to its theatrical film business and network, cable, and premium television channels, the company has been rapidly gaining ground in the streaming space. With the business adding a record 9.9 million subscribers for its Paramount+ service in the fourth quarter, the company's streaming service increased revenue roughly 81% year over year and helped push overall revenue up 2%, despite a 7% drop in the sales for the much larger TV media segment.
The company will likely go through some growing pains as it continues its transformation to be a more streaming-oriented business, but it looks cheaply valued and has the potential to deliver strong returns.
5. American Express
American Express (AXP 2.56%) has the makings of a great dividend growth stock. As per the company's recently announced dividend hike, AmEx will be increasing its quarterly payout 15% to $0.60 per share. Based on the company's current share price, the stock has a forward yield of roughly 1.4%. Even prior to the upcoming payout increase going into effect, the financial services giant has increased its payout 160% over the last decade. It's also been returning value to shareholders in another way.
Image source: Getty Images.
By buying back and retiring shares, AmEx has decreased its outstanding share count by nearly a third over the last 10 years.Reducing the total number of shares has the effect of increasing the amount of earnings per share, and along with positive trends for the business, this catalyst has helped push earnings per share up 149% across the stretch. While some investors might argue that buying back shares isn't the best use of capital, it can be a smart move for relatively mature businesses that aren't under pressure to diversify or blaze a trail with new growth initiatives.
Having guided Berkshire to repurchase $66 billion worth of its own stock over the last four years, it's clear that Buffett is a fan of buybacks, and he might find a lot to like about the recent decision from AmEx's board of directors to authorize the repurchasing of 120 million of its common-stock shares. In addition to creating a positive catalyst for AmEx's earnings and creating more room for dividend increases, new stock buybacks will also have the effect of increasing Berkshire's overall ownership stake in the business.
