In 1973, Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%) CEO Warren Buffett oversaw his company's first annual shareholder meeting -- a few dozen people attended. Today, Berkshire's annual shareholder meetings are nothing short of a spectacle that draw anywhere from 30,000 to 40,000 people to Omaha, Nebraska, to hear Buffett and right-hand man Charlie Munger speak on the economy and stock market.
New and tenured investors flock to Berkshire Hathaway's annual shareholder meetings because the Oracle of Omaha has a phenomenal track record. Since taking over 58 years ago, he's led his company's Class A shares (BRK.A) to an aggregate gain of better than 4,100,000%. On an annualized basis, he's doubled up the total return, including dividends, of the S&P 500.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
The great thing about Warren Buffett is that he's an open book. He willingly shares the traits he looks for in companies when investing, as well as the strategies he employs to build wealth. Some of these ideals include investing for the long term and buying wonderful companies at fair prices.
But the Buffett-ism that's not given nearly enough credit for his success is his desire for portfolio concentration. Including Berkshire Hathaway's investments in five Japanese trading houses, 77% ($282 billion) of the $366 billion portfolio Warren Buffett oversees is invested in only six stocks.
1. Apple: $170.9 billion (46.7% of invested assets)
When Warren Buffett and his investing lieutenants, Ted Weschler and Todd Combs, believe they've found a can't-miss investment idea, they aren't shy about it. With nearly 47% of Berkshire Hathaway's invested assets tied up in tech stock Apple (AAPL -0.35%), we really shouldn't be surprised when Buffett refers to it as "a better business than any we own."
Despite Apple's stock being exceptionally pricey, the Oracle of Omaha and his team simply can't stop buying. One reason for that might be Apple's stellar branding. It's one of the world's best-known companies and, arguably, the most valuable global brand. Physical product sales tend to take care of themselves when you have a loyal customer base.
Warren Buffett's affinity for Apple may also have to do with the leadership of CEO Tim Cook. Since becoming CEO in 2011, Cook has allowed his company to grow through innovation. Its smartphones continue to lead the way in the U.S. market, and its faster-growing subscription services segment could one day eclipse physical products in terms of cash-flow generation.
But deep down, Apple's capital-return program might be why Buffett loves Apple so much. Apple is returning more than $15 billion annually to its shareholders via dividends and is closing in on $590 billion in cumulative share buybacks over the past decade.
A rapid increase in interest rates has been a positive for banks (like BofA) holding outstanding variable-rate loans. Effective Federal Funds Rate data by YCharts.
2. Bank of America: $28.7 billion (7.8% of invested assets)
Even though Berkshire Hathaway has close to half of its invested assets in information technology (mostly thanks to Apple), it's financial stocks where the Oracle of Omaha is most knowledgeable. His favorite at the moment is Bank of America (BAC -0.21%), which accounts for close to 8% of invested assets.
Bank stocks are smart cyclical plays, in the view of Warren Buffett. Even though they're fully susceptible to weakness during economic downturns in the form of higher loan losses and delinquencies, the U.S. economy spends a disproportionate amount of time expanding, relative to in a recession. Playing this simple long-term numbers game, and allowing banks like BofA to grow their loans and deposits over time, usually results in a winning scenario for patient investors.
But let's be honest: It also doesn't hurt that Bank of America is the money-center bank that's perfectly positioned for the current economic environment. Among big banks, BofA is the most sensitive to changes in interest rates. With the Federal Reserve raising rates at the fastest pace in decades, Bank of America is seeing billions of dollars in added net-interest income every quarter.
3. American Express: $25.5 billion (7% of invested assets)
In case I haven't driven the point home yet, the Oracle of Omaha really enjoys investing in financial stocks with sustainable moats. Credit-services company American Express (AXP -0.62%), which is the second-longest continuously held stock in Berkshire Hathaway's portfolio (30 years), is currently the third-largest holding by market value.
In addition to benefiting from extended bull markets and economic expansions, American Express charges ahead (pun intended), thanks to its ability to service both sides of a transaction. On top of being the No. 3 payment processor for merchants in the U.S., it also acts as a lender to consumers and businesses with its credit cards. When the U.S. and global economy are booming, AmEx is able to generate healthy net-interest income and fees from consumers via its credit line, as well as fees from merchants.
Another element to American Express's long-term success is its customer base. AmEx has done an excellent job of courting high earners to use its credit cards. Compared to the average consumer, people with higher incomes aren't usually impacted as much by mild recessions. In other words, AmEx's customer base brings some level of assurance during downturns that it'll fare better than other lending institutions.
Image source: Coca-Cola.
4. Coca-Cola: $24.5 billion (6.7% of invested assets)
Another stock that exemplifies Warren Buffett's love of wholesome, well-known brands is Coca-Cola (KO). Coke is Berkshire's longest continuously held stock (35 years), and thanks to a ridiculously low cost basis, it's providing a nearly 57% yield on cost to Buffett's company each year.
While younger, growth-seeking investors might overlook Coca-Cola, given that its growth heyday has long since passed, it's a company that still checks all the right boxes for mature/conservative investors. Coca-Cola has over two dozen brands generating in excess of $1 billion in annual sales, and it's operating in all but three countries worldwide -- North Korea, Cuba, and Russia being the exceptions. This practically unmatched geographic diversity leads to highly predictable operating cash flow in developed countries and the ability for higher organic growth rates in emerging markets.
As I've touched on, Coke's marketing department is top-notch as well. The company is allotting more than 50% of its advertising budget to digital channels and leaning on artificial intelligence to reach younger audiences. However, it still has well-known brand ambassadors, sports sponsorships, and its holiday tie-ins to connect with mature consumers.
5. Chevron: $20 billion (5.5% of invested assets)
One of the more interesting developments over the past few years has been the Oracle of Omaha's interest in energy stocks. Since 2020, no oil and gas stock has played a bigger role in Berkshire Hathaway's portfolio than Chevron (CVX 0.37%). Even after this stake was modestly reduced in the first quarter, Berkshire still holds roughly $20 billion worth of Chevron shares, as of March 31.
The logical reason Buffett, Weschler, and Combs would OK such a large ongoing investment in Chevron is the belief that energy commodity prices, such as crude oil and natural gas, will head higher.
Though both oil and gas have headed lower in recent months, there is a macro thesis to support higher spot prices. More than three years of capital underinvestment by global energy majors during the COVID-19 pandemic, coupled with Russia's invasion of Ukraine, which has no determined end date, will likely make it difficult to quickly increase the global supply of crude oil and possibly natural gas. When the supply of energy commodities is constrained, it's usually a positive for spot prices.
Furthermore, Chevron offers a phenomenal capital-return program. Its board recently OKed the repurchase of up to $75 billion in its common stock, and the company has raised its base annual payout for 36 consecutive years.
6. Occidental Petroleum: $12.4 billion (3.4% of invested assets)
The sixth stock that, collectively, accounts for 77% of Warren Buffett's $366 billion investment portfolio is Occidental Petroleum (OXY -0.15%). The nearly 222 million shares of Occidental that Berkshire Hathaway owns have all been purchased since the start of 2022.
In many ways, the thesis for owning shares of Chevron and Occidental is identical: It's a bet on higher spot prices for crude oil and natural gas. But there are a few notable differences between the two companies.
For example, even though Chevron and Occidental are both integrated energy companies -- i.e., they have midstream and/or downstream assets, in addition to upstream drilling operations -- Occidental brings in a considerably higher percentage of its revenue from drilling than does Chevron. Put another way, Occidental Petroleum's operating cash flow is much more sensitive to spot price changes in crude oil than Chevron.
Something else that's very clearly different is their respective financial flexibility. Chevron closed out the first quarter with a net debt ratio of just 4.4%. Management wisely paid down a sizable chunk of the company's net debt last year. Even though Occidental has practically halved its net debt over the past two years, it's still digging itself out from quite the hole following its debt-driven acquisition of Anadarko. Therefore, Occidental's balance sheet makes it a riskier and more volatile investment than Chevron.
