The "Magnificent Seven" is a moniker Bank of America analyst Michael Hartnett coined to describe a group of America's largest technology stocks, which handily outperformed the S&P 500 index in 2023. The Magnificent Seven includes:
- Apple
- Microsoft
- Nvidia
- Amazon
- Alphabet
- Meta Platforms
- Tesla
Last year, the Magnificent Seven stocks returned an average of 112%, obliterating the 24% gain in the S&P 500. Considering most of these companies operate on the front lines of the artificial intelligence (AI) revolution, it's impossible not to pay attention to them.
But let's set the group aside for a moment and talk about Warren Buffett, considered one of the most successful investors of all time. He's run the Berkshire Hathaway (BRK.A 0.35%)(BRK.B 0.58%) investment company since 1965, and during the past five years alone, he's plowed more money into one particular stock than any other in all of his 58 years at the helm.
Image source: The Motley Fool.
The Magnificent Seven is contributing to Buffett's success
Before we talk about that mystery stock, it's important to recognize that a large part of Berkshire's success over the past several years can be credited to one member of the Magnificent Seven. Buffett loves to invest in companies with steady revenue growth, robust profitability, and strong management teams. He especially likes companies that return money to shareholders through dividends and stock buybacks.
It's no surprise, then, that Berkshire has spent an estimated $38 billion accumulating shares of Apple since 2016. It has paid off handsomely, because that Apple position is worth a whopping $163 billion as of this writing, accounting for 42.2% of the total value of Berkshire's $362.4 billion portfolio of publicly traded stocks and securities.
It's worth noting Berkshire owns a small position in another Magnificent Seven constituent: Amazon. That holding is worth just $1.7 billion today, though Buffett has repeatedly expressed regret for not recognizing Amazon's potential sooner.
Berkshire's $38 billion bet on Apple was a home run, but the conglomerate has spent nearly twice that amount since 2019 accumulating stock in another company that has nothing to do with the Magnificent Seven, or the technology sector, at all.
The spectacular stock Buffett likes the most
As I touched on earlier, Buffett is widely regarded as one of the best investors in history. Berkshire Hathaway was a struggling textiles company when he bought it in 1965, and he transformed it into the successful conglomerate it is today.
Berkshire's portfolio features 47 publicly traded stocks and securities, including Apple, but it also wholly owns a number of private companies, including GEICO insurance, Dairy Queen, and Duracell. Berkshire generated $364.4 billion in revenue and $96.2 billion in earnings per share in 2023, both of which were record highs.
For some perspective, Berkshire generated just $49.3 million in revenue and $2.3 million in earnings during Buffett's first year in charge.
Berkshire stock returned an astounding 4,384,748% between 1965 and 2023, which translates to a compound annual return of 19.8% over 58 years. In other words, it could have turned a $1,000 investment into $43.8 million. By comparison, the same $1,000 investment in the S&P 500 in 1965 would be worth just $312,230 today.
Therefore, it shouldn't be shocking to learn that the stock in which Buffett has allocated $73.6 billion since 2019 is...Berkshire Hathaway. That's right. The conglomerate has spent more money on repurchasing its own stock during the past five years than on any other investment in its history.
NYSE: BRK.A
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Berkshire could join the $1 trillion club this year
Berkshire's stock repurchases shrink the number of shares outstanding, which lifts its earnings per share as well as existing investors' ownership stake in the company. It's a popular way for companies to return money to their investors, but it's also a clear sign of Buffett's conviction in himself and his team.
Berkshire's market value now is about $870 billion, and if its stock continues to deliver a 19.8% annual return, it will cross the $1 trillion threshold in 2024. It would be the first non-technology company in U.S. history to reach that threshold. Only Apple, Microsoft, Nvidia, Amazon, Alphabet, and Meta Platforms are currently in that exclusive club.
Investors looking for opportunities outside the Magnificent Seven might want to consider betting on Buffett, but there is one caveat. In his 2023 letter to shareholders, Buffett warned investors not to expect any more eye-popping performance from Berkshire, because the conglomerate has grown so large that it's struggling to find quality investment opportunities capable of moving the growth needle.
Nevertheless, given the sheer size of Berkshire's stock buybacks, it's clear he thinks his conglomerate is still the best investment he can make.
