Warren Buffett's top stocks often make for good long-term investments. But this year, only one of the top five holdings in Berkshire Hathaway's investment portfolio is beating the markets. And while it's only a handful of stocks that are carrying the S&P 500's strong 18% gains this year, it has still been a largely lackluster year for most of these Buffett stocks. Apple (AAPL -0.35%), Bank of America (BAC -0.21%), American Express (AXP -0.62%), Coca-Cola (KO), and Chevron (CVX 0.37%) account for a combined 74% of Berkshire's stock portfolio. Here's how these stocks have performed this year, in order from worst to best:
Chevron: -10%
Oil and gas producer Chevron hasn't been doing poorly, but with oil prices lower, investors have been increasingly bearish on the stock. Chevron released its latest earnings numbers on July 28 and while it posted a profit of more than $6 billion, that's still well shy of the incredible $11.6 billion profit it reported in the same period last year.
The company blamed the worsening results on lower margins and lower upstream realizations during the period. Oil prices remain strong this year and that could remain the case for the foreseeable future as both Russia and Saudi Arabia are looking to extend production cuts in order to help keep prices high. Over the years, the stock's performance has closely followed the path of West Texas Intermediate, a key oil benchmark in the industry:
Chevron can be a good hedge against inflation. It also pays an attractive dividend which yields 3.6% (the S&P 500 average is around 1.5%). If you're looking for a strong income stock to hold, Chevron can make for an excellent investment despite its underwhelming performance this year.
Bank of America: -5.6%
Challenging economic conditions, fears of a looming recession, and multiple bank failures this year explain why investors haven't been bullish on a top bank such as Bank of America this year. Although the company's net income for the period ended June 30 totaled $7.4 billion and was up 19%, that hasn't been enough to make investors eager to invest in the bank stock.
There is always the lingering fear that a downturn isn't that far away and that with rate hikes still not over, the worst could still be on the way for the economy. And if that happens, bank stocks could be in free fall. Bank of America remains cautious as well, adding to its reserve build as its provision for credit losses totaled $1.1 billion this quarter, up from $500 million a year ago.
While Buffett has gotten rid of other bank stocks, he has remained with Bank of America, saying that the likes the management. And at 3%, this is another high-yielding dividend stock investors can buy and hold for the long term. Plus, with the economy growing by 2.4% last quarter and beating expectations, there's growing optimism that a recession may not end up happening. And that could make Bank of America a very underrated buy right now.
Coca-Cola: -3%
Coca-Cola is one of Buffett's favorite stocks; the billionaire investor previously said he drinks as many as five cans of coke per day. The soft drink company is a favorite of many consumers as well, as it has been holding its own amid inflation, raising prices, and still not seeing a big drop in demand. This year, it expects organic revenue growth of up to 9% -- that's a stellar growth rate for a business that normally achieves much smaller gains:
KO Revenue (Annual YoY Growth) data by YCharts.
But investors may be cooling their expectations for the stock as it trades at 26 times earnings. And with a growth rate that may not stay this high for much longer, the stock is not as overwhelming of a buy as it may have been in recent years. However, investors may still want to consider loading up on it for its dividend as Coca-Cola's yield is up around 3%.
American Express: +12%
The second-best performing stock on this list is American Express. The top credit card company caters to affluent customers and thus the risk surrounding it is a bit less than it may be for the other financial stock on this list, Bank of America. Business is booming for the card issuer. For the period ending June 30, American Express reported record revenue of $15.1 billion, which was up 12% year over year. It, too, has increased its provisions for credit losses ($1.2 billion versus $410 million a year earlier) but its earnings were still up 11% to a little under $2.2 billion overall.
It was the fifth straight period in which the company posted record revenue. The business hasn't been slowing down despite inflation and consumers tightening up on spending, in what may be further proof that its customer base is more resilient than others. But even with the strong results, the stock's gains this year still lag behind the S&P 500, which is up nearly 20%.
American Express trades at only 17 times earnings which is cheaper than rivals Mastercard and Visa, which are both at multiples of over 30. At an attractive valuation and with continued growth, American Express is a stock that can continue rising. And with a dividend yield of 1.4%, investors can also collect a decent payout from this investment.
Apple: +48%
The only Berkshire stock on this list that has outperformed the S&P 500 this year is Apple. The tech giant has soared due to its resilient results this year, coupled with a comeback in tech. What's also helping Apple is that it has been working on developing more growth opportunities. Earlier this year, it announced the launch of its Vision Pro headsets, which give customers the ability to experience content for both virtual and augmented reality. There are also rumors that it is working on its own version of ChatGPT, which some engineers are referring to as "Apple GPT."
At a $3 trillion market cap, the company's valuation continues to reach new heights. The challenge will be, however, whether it can continue rising, as it's trading at a fairly high price-to-earnings multiple of 33. And for the first three months of the year, sales were down 3% to $94.8 billion.
There's still more growth ahead for the business, but investors should be careful not to get too excited about Apple as its valuation has gotten a bit pricey amid the hype in tech stocks this year. And while Apple has grown its dividend over the years, it remains relatively modest at just 0.5%.
