Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%) is a sprawling conglomerate worth over $770 billion.
While its main business is insurance, much of Berkshire's value comes from its investment portfolio. Chairman and CEO Warren Buffett has generated incredible market-beating returns for shareholders through prudent long-term buy-and-hold investing. Today, Berkshire's portfolio is worth about $361 billion.
But just two holdings account for over 42% of Berkshire Hathaway's entire market capitalization. Here they are.
Image source: The Motley Fool.
Apple (22%)
At Berkshire Hathaway's annual meeting in May, Buffett called Apple (AAPL -0.35%) "a better business than any we own." He said he'd love to own more of the company, and he continually claims a greater share of the business thanks to Apple's generous share repurchase program.
Today, Berkshire's 915 million-plus shares of Apple account for over 48% of its equity portfolio. They're worth about $173 billion, or 22.5% of Berkshire's market cap.
There's good reason for investors to like Apple so much. It's positioned itself as the platform owner when it comes to smartphones, taking a more than 50% market share in the United States. Around the world, it counts over 2 billion active devices.
Its combination of hardware, software, and services makes its products extremely sticky and allows it to integrate its products to work closely together. iPhone users are more likely to buy another Apple product than a non-Apple alternative, creating a virtuous cycle of growing product sales.
But the services segment is where Apple's seeing most of its growth lately. That's bolstered by its growing active device user base. As the platform owner, it's able to exercise a lot of leverage to monetize its users through services, including its App Store, where third-party developers can sell their software to iOS and Mac users.
That all results in tremendous amounts of cash flow every year. Last year, the company generated $110.5 billion worth of cash from operations. It uses all that cash to return money to shareholders through a robust stock repurchase program, with $77.5 billion repurchased in 2023, and a modest dividend, with $15 billion in dividend payments in 2023.
While the shares trade at around 29 times 2024 earnings estimates, Apple deserves a premium valuation -- but not because it has outsize growth opportunities, although the Vision Pro and its AI bets could turn out to be big opportunities. The reason it deserves that valuation is that Apple's strong net cash position of $57 billion ($158 billion in cash and securities) and its massive buybacks distort the multiple that long-term investors pay for future earnings.
With Apple as Buffett's largest stock position by far, investors should consider the stock themselves. And there's no need to be concerned about how heavily concentrated Berkshire's position is in the stock.
Cash and U.S. Treasury bills (20%+)
Berkshire Hathaway ended the third quarter with $157.2 billion worth of cash and cash equivalents. A growing portion of those funds are parked in U.S. Treasury bills, with maturities between three months and one year. In fact, Buffett moved $29 billion into those longer-dated Treasury bills last quarter, shifting funds from cash and shorter-duration bonds.
The move worked well. The subsequent drop in interest rates has surely pushed the value of those Treasury securities higher. Even if Berkshire holds those investments until maturity, it'll earn the equivalent annual yield of more than 5% on the investment.
As a result, Berkshire's cash and equivalents probably account for more than 20% of its market cap as long as Buffett hasn't made any huge shifts in strategy this quarter.
Make no mistake, though: Buffett isn't chasing yield in Treasuries. Quite the opposite. As he writes in every quarterly report, "We insist on safety over yield with respect to short-term investments."
The reason Buffett is stockpiling money in Treasury Bills is that he doesn't see very much on the stock market worth investing in. Indeed, he and the other investment managers at Berkshire have sold more stocks than they bought in each of the past four quarters.
That doesn't mean investors should be piling into Treasuries or stockpiling cash. There are a lot of great opportunities for individual investors. But the fact that Buffett's taking more chips off the table for now is an indication that those opportunities are becoming harder to find in the current environment.
The strong cash position could turn into an advantage for Berkshire Hathaway down the line if we see a big pullback in the stock market. Buffett and his team have a record amount of cash ready to deploy when a big opportunity strikes. In the meantime, Berkshire investors can't be too upset with the higher yields Buffett locked in last quarter.
