For longtime investors, there's perhaps no bucket-list event that tops attending Berkshire Hathaway's (BRK.A 1.18%) (BRK.B 1.30%) annual shareholder meeting in Omaha, Nebraska. The annual meeting, which is slated for Saturday, May 6, gives investors an opportunity to hear one of Wall Street's brightest minds, CEO Warren Buffett, offer his take on stocks and the U.S. economy.
If you're wondering why so many new and tenured investors pay close attention to the Oracle of Omaha, look no further than his performance as CEO. Over 58 years (ended Dec. 31, 2022), Buffett has overseen a gain in Berkshire Hathaway's Class A shares (BRK.A) of 3,787,464%. The comparable gain for the broad-based S&P 500 over the same stretch, including dividends paid, is 24,708%. It's safe to say that Buffett knows a thing or two about investing.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
While investors have long lauded his patience and his desire to own well-known, brand-name, cyclical businesses, it's portfolio concentration that's been Buffett's unsung hero. The Oracle of Omaha believes that diversification is only necessary if you don't know what you're doing.
Despite overseeing $347 billion in invested assets, approximately 89% of Warren Buffett's portfolio is concentrated in only 11 stocks.
1. Apple: $155.4 billion (44.7% of invested assets)
If you had any doubt about Buffett's preference for portfolio concentration, just take a gander at tech stock Apple (AAPL -1.22%), which is viewed as one of Berkshire's "four giants" and makes up almost 45% of invested assets.
There's not a box Apple doesn't check for Buffett and his investing lieutenants, Todd Combs and Ted Weschler. It's considered by a number of studies and surveys to be the most valuable brand in the world, and it leads by innovation, with iPhone accounting for roughly half of all U.S. smartphone market share.
Most importantly, Apple is a capital-return king. Over the past 10 years, Apple has repurchased in excess of $550 billion worth of its own common stock.
2. Bank of America: $30.2 billion (8.7% of invested assets)
There's probably not an industry Buffett is more comfortable investing in than bank stocks, which helps to explain why Bank of America (BAC 3.35%) is Berkshire's second-largest holding by market value.
The reason the Oracle of Omaha likes bank stocks is simple: They're cyclical. Even though banks usually struggle with higher loan losses during recessions, periods of expansion last considerably longer. This allows a company like Bank of America (BofA) to benefit from loan and deposit growth as the U.S. economy naturally expands over time.
To boot, BofA is the most interest-sensitive of the big banks. Every time the Federal Reserve hikes interest rates, it results in more net-interest income in BofA's pockets.
3. Chevron: $28.2 billion (8.1% of invested assets)
Energy stocks have been a big emphasis for Buffett and his investing team over the past couple of years, with integrated oil and gas giant Chevron (CVX 1.54%) comprising a big portion of that bet.
Tying up more than $28 billion in Chevron stock likely means one thing: Buffett, Combs, and/or Weschler believe energy commodity prices will remain elevated or head higher. Three years of capital underinvestment following the COVID-19 pandemic, in conjunction with Russia invading Ukraine, is challenging the global energy supply chain. Tight oil and gas supply does support a thesis calling for higher energy commodity prices.
As noted, Chevron is also an integrated company. If crude oil prices decline, it can lean on its chemical plants, refineries, and transmission pipelines to pick up the slack.
4. Coca-Cola: $25.7 billion (7.4% of invested assets)
Beverage stock Coca-Cola (KO 2.14%) is Berkshire Hathaway's longest-held stock at 35 years. With Coca-Cola's cost basis of just $3.2475/share, Buffett's company is netting a nearly 57% annual yield on cost from its Coke shares.
Despite its growth heyday being long gone, Coca-Cola continues to move the needle. It has 26 brands generating at least $1 billion in annual sales, and it's operating in all but three countries worldwide (North Korea, Cuba, and Russia). This geographic diversity helps produce predictable cash flow in developed markets, while leaving the door open for higher organic growth rates in emerging markets.
Thanks to its top-notch marketing department, Coca-Cola is, arguably, the best-known consumer goods brand in the world.
Image source: Getty Images.
5. American Express: $24.5 billion (7% of invested assets)
Have I mentioned that Warren Buffett likes financial stocks? Credit-services company American Express (AXP 6.22%) has been a continuous holding for Berkshire Hathaway since 1993.
What's special about AmEx is its ability to attack from both sides of the register. In addition to being the United States' No. 3 payment processor (based on credit card network-purchase volume), it's also a lender. American Express is collecting fees from merchants to process transactions while also charging fees and interest to its cardholders.
Furthermore, AmEx tends to attract high earners. People with higher incomes are less likely to alter their spending habits during an economic downturn.
6. Occidental Petroleum: $13 billion (3.8% of invested assets)
The other energy stock that makes up a sizable percentage of Berkshire Hathaway's invested assets is Occidental Petroleum (OXY 0.89%). Buffett and his lieutenants have purchased 211.7 million shares of Occidental since the start of 2022.
While the upside catalysts for Chevron and Occidental are similar, the biggest difference between the two is that upstream (i.e., drilling) accounts for a much larger percentage of Occidental's total revenue. This suggests a higher price for oil could allow Occidental to really outperform. Likewise, a drop in the spot price of oil would likely see Occidental lag Chevron.
To add, Occidental Petroleum is lugging around a considerably larger net-debt position than Chevron. It needs higher energy commodity prices to continue to reduce its outstanding debt.
7. Kraft Heinz: $12.8 billion (3.7% of invested assets)
Consumer-packaged goods behemoth Kraft Heinz (KHC 1.80%) is Berkshire Hathaway's seventh-largest holding, with a market value of close to $13 billion.
On one hand, the pandemic encouraged consumers to stay home and eat more easy-to-make meals and snacks, which benefited Kraft Heinz. On the other hand, recent quarterly reports have shown that Kraft Heinz is growing solely by raising prices. The company's volume/mix is declining, which signals consumers are probably trading down to cheaper brands as prices rise. That's not good news.
The other issue for Kraft Heinz is its balance sheet. The company is carrying around a mountain of goodwill and long-term debt, which could constrain future investments.
8. Moody's: $7.7 billion (2.2% of invested assets)
Credit-rating agency Moody's (MCO 0.02%) has been a continuous holding for more than two decades and is, on a percentage basis, one of Buffett's top-performing investments.
For more than a decade, Moody's debt-rating segment has been its primary growth driver. With interest rates at or near historic lows, businesses and government entities were able to borrow cheaply. This kept Moody's credit-rating division busy.
However, with interest rates now climbing at their fastest pace in decades, it's Moody's Analytics that's now shining. With a possible U.S. recession on the horizon, an operating segment that helps its subscribers analyze risk and maintain corporate compliance is of increased importance.
9. Activision Blizzard: $4.1 billion: (1.2% of invested assets)
It's incredibly rare when Warren Buffett and his team make a sizable investment for the short term, but that's precisely what they've done with gaming company Activision Blizzard (ATVI).
As the Oracle of Omaha has previously noted, buying Activision stock is all about the arbitrage opportunity. In January 2022, Microsoft announced plans to buy Activision for $95 per share in an all-cash deal. Unfortunately, regulators have held up the deal, and there doesn't seem to be any guarantee that it'll be completed.
Although Activision Blizzard remains quite profitable on an adjusted basis, with its Call of Duty franchise leading the way, it's unlikely this would turn into a long-term holding for Berkshire if the Microsoft buyout fell through.
10. BYD: $3.6 billion (1% of invested assets)
China-based electric vehicle (EV) manufacturer BYD (BYDD.F -1.38%) is another stock that's generated quadruple-digit returns for Warren Buffett and his team.
Although all eyes seem to be on Tesla and outspoken CEO Elon Musk in the EV space, it's BYD that's been ramping production at a phenomenal pace and gobbling up market share. According to data from InsideEVs, BYD outpaced Tesla by a substantial margin in plug-in sales last year (battery EVs and plug-in hybrid sales, combined) -- 1.86 million for BYD in 2022 vs. 1.31 million for Tesla.
The best part is that BYD is just getting its feet wet. This year alone, BYD is targeting 4 million combined plug-in hybrid and EV sales.
11. HP: $3.6 billion (1% of invested assets)
The 11th stock that collectively accounts for 89% of Berkshire Hathaway's $347 billion investment portfolio is none other than tech stalwart HP (HPQ 0.69%).
Although Warren Buffett largely avoids tech stocks, he loves a good value and a well-known brand. HP isn't the growth story it was decades ago, but laptop/desktop and printer sales tend to be fairly predictable from one year to the next. Mature, profitable companies with well-defined outlooks and single-digit price-to-earnings ratios are a breeding ground for share buybacks and dividend income.
The Oracle of Omaha is a huge fan of companies that repurchase their stock, which increases the ownership stakes of existing shareholders. HP has bought back more than $13 billion worth of its common stock over the trailing three years.
