Warren Buffett Has 51% of Berkshire Hathaway's $370 Billion Portfolio Invested in 2 Stocks

Warren Buffett took control of Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%) in 1965. Since then, his value-oriented investment philosophy has helped the company grow at an astonishing pace, with Berkshire shares compounding twice as fast as shares of the S&P 500. The company is currently worth $780 billion, and a substantial portion of that value comes from its $370 billion stock portfolio.

Buffett and his co-investment managers have 51% of that total spread across two stocks: Apple (AAPL -0.35%) is the largest holding at 45% of the portfolio, and Coca-Cola (KO) is the fourth-largest holding at 6.4% of the portfolio. That asset allocation is a clear sign of confidence.

Does that mean the stocks are worth buying?

Apple: 45% of Berkshire's portfolio

Apple dominates the global smartphone market in terms of revenue and profits, but last year (for the first time) it displaced Samsung as the leader in smartphone shipments. Apple is also the market leader in tablets, smartwatches, and personal audio devices (think AirPods), and the fourth-largest personal computer vendor by shipments. That success is a product of brand authority.

Apple pairs appealing hardware with patented software to create an enjoyable user experience that becomes increasingly compelling with additional devices. The company also designs its own chips, which extends its ability to control costs and create a differentiated user experience. Ultimately, consumers are willing to pay a premium for Apple products. The average iPhone costs twice as much as the average Android smartphone, according to Insider Intelligence.

On the whole, Apple performed well in the first quarter (ended Dec. 30, 2023), beating expectations on the top and bottom lines. Revenue increased 2% to $119.5 billion as iPhone sales rose 6% and services revenue rose 11%. Meanwhile, GAAP net income increased 16% to $2.18 per diluted share. That was due to stock buybacks and a 290-basis-point expansion in gross margin driven by strong growth in services. To elaborate, services earn higher margins than hardware, so Apple becomes more profitable when services revenue outpaces total revenue.

However, there was one important blemish in the first-quarter report. Sales in China declined 13%, fueling concern that Apple is struggling with competition. Indeed, Huawei and Xiaomi reported more robust smartphone sales and Apple lost market share in the region last year, according to Jeffries. Investors should monitor the situation closely. China represents nearly one-fifth of Apple's total revenue.

Going forward, Wall Street expects Apple to grow earnings at 8.6% annually. That consensus estimate makes its current valuation of 28.6 times earnings look expensive. Personally, I would avoid this stock at its current price and wait for a much cheaper entry point. But Warren Buffett may disagree.

Coca-Cola: 6.4% of Berkshire's portfolio

Coca-Cola is the largest nonalcoholic beverage company in the world. It is best known for carbonated soft drink (CSD) brands like Diet Coke, Fanta, and Sprite, not to mention its namesake Coca-Cola. The company dominates the CSD market in virtually every geographic region, and it has actually gained share in recent years. But Coca-Cola also has a strong presence in other corners of the nonalcoholic beverage market.

Specifically, its portfolio includes popular brands like Costa coffee, Dasani water, Minute Maid juices, and Powerade sports drinks. The company also earns fees from its distribution agreement with leading energy drink brand Monster Beverage. In the future, Coca-Cola has room to grow its CSD business, especially in emerging markets, but the company has a more substantial opportunity to gain share in other categories.

Coca-Cola reported solid financial results in the fourth quarter (ended Dec. 31, 2023). Revenue rose 7% to $10.8 billion on pricing power and a modest increase in case volume. Growth was particularly strong in emerging markets across Latin America and the Asia Pacific, an encouraging sign given the long-term opportunity there. Meanwhile, non-GAAP net income increased 10% to $0.49 per share as the company achieved a 180-basis-point expansion in non-GAAP operating margin.

Going forward, management expects revenue to grow between 4% annually and 6% annually over the long-term, while earnings per share increase between 7% annually and 9% annually. In that context, its current valuation of 24 times earnings falls somewhere between reasonable and expensive.

From that starting point, I'm not convinced Coca-Cola can beat the market over an extended period. The stock underperformed over the last three, five, and 10 years. But income investors willing to trade outperformance for a reliable dividend should consider buying the stock. Coca-Cola has increased its dividend for 62 consecutive years, meaning it is part of an elite group known as dividend kings.