Warren Buffett would probably say Berkshire Hathaway's (BRK.A +0.10%) (BRK.B +0.06%) portfolio is highly diversified. It currently owns 44 different publicly traded stocks. On top of that, it owns dozens of private companies and nonmarketable securities. That's an absolutely sprawling portfolio for someone who once said, "If you know how to analyze businesses and value businesses, it's crazy to own 50 stocks, or 40 stocks, or 30 stocks probably."
To be sure, Berkshire Hathaway is a much different company than when Buffett said that at Berkshire's 1996 shareholder meeting. Its sheer size requires it to take advantage of opportunities wherever Buffett and his team of investment managers can find them, regardless of how big or small. And those opportunities are increasingly few and far between. But Berkshire's publicly traded equity portfolio still shows that Buffett abides by another key principle Buffett espoused at that shareholder meeting: "We like to put a lot of money into things we feel strongly about."
Of the $283 billion Berkshire Hathaway holds in publicly traded equities, a whopping 47% of that is concentrated in just three stocks.
Image source: The Motley Fool.
1. Apple: 22.7% of invested assets
Despite selling over two-thirds of Berkshire's stake in Apple (AAPL 0.49%) since late 2023, the stock still remains its top equity holding by a significant margin. That's thanks in part to its strong performance over the last two years. But even more thanks goes to the incredible price performance since Buffett first established a position in the stock in 2016. The share price has increased roughly tenfold in that time.
When Berkshire first bought shares of Apple, the stock was trading at an incredible valuation, around 10 times earnings. Considering the iPhone and iPad were already runaway hits at that point, producing billions in free cash flow, it's no wonder Buffett decided to pour $36 billion into the stock over the next couple of years.
NASDAQ: AAPL
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Apple has continued to produce significant earnings and free cash flow growth since Berkshire initially acquired shares. It's found success with new products like Apple Watch and AirPods, and its services segment has transformed into a high-margin growth engine. That segment should continue to grow over the next few years, especially as Apple incorporates more artificial intelligence (AI) capabilities into the iPhone.
However, roughly two-thirds of Apple's stock price appreciation since 2016 came from multiple expansion, not earnings growth. The stock now trades around 30 times forward earnings. Based on Buffett's decision to sell the majority of Berkshire's stake in the stock over the past year, it suggests he thinks that's very pricey for the shares.
But Apple's massive capital return program ensures shareholders receive a growing portion of earnings every year, which helps justify a significant premium to the overall market. While Buffett might prefer a better price for the shares, he still believes strongly enough in the company to maintain a significant portion of Berkshire's portfolio in the stock.
2. American Express: 14.3% of invested assets
American Express (AXP +3.29%) is one of the longest-held stocks in Berkshire Hathaway's portfolio, and Buffett has suggested he has no plans to sell the shares. Berkshire paid $1.3 billion for its position in Amex stock in the mid-'90s. Those shares are worth about $40.5 billion as of this writing. All the while, it's paid out a considerable dividend to shareholders. In fact, Berkshire will collect about $500 million in dividends from Amex over the next year.
American Express is unique in its position as a credit card company. It both issues credit cards and operates the payment network they run on. Typically, banks partner with a payment network, but Amex's position allows it to keep a greater share of the economics of each card transaction. As a result, it historically hasn't relied as much on collecting interest on consumer debt for its revenue compared to bank-issued credit cards.
NYSE: AXP
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Over time, however, Amex has built a portfolio of credit products that appeal to a wide range of consumers and businesses, but mostly focused on high-income households. That includes accounts charging interest, which is a growing portion of revenue. Interest income increased 18% last year, accounting for roughly a quarter of total revenue. Another fast-growing portion of the business are annual fees it charges on its cards. Its premium products have found broad appeal, especially with younger consumers, suggesting a long runway of continued growth for Amex ahead.
Shares of American Express trade for less than 18 times forward earnings as of this writing. With a focus on more affluent consumers, Amex's growth engines of higher fees and increasing its loans can continue to drive results without as much downside risk as credit issuers focus more on lower-income households. As a result, it should be able to produce more steady earnings growth over the long run, making it a great value at this price.
3. Bank of America: 10.1% of invested assets
Another stock that's gotten the axe from Buffett recently is Bank of America (BAC +1.54%), a company in which he first invested in 2011. Berkshire provided $5 billion in capital to the bank in exchange for preferred stock paying a 6% annual dividend and warrants for 700 million shares of the common stock.
When Bank of America raised the dividend on its common stock in 2017, it became more profitable to own those shares instead of the preferred shares, and Buffett exercised Berkshire's warrants. He continued to add to Berkshire's position through 2020.
Bank of America has bounced back strong from the depths of the financial crisis, and that momentum has increased in recent years. The company opened hundreds of new financial centers over the last few years, which helped it add 213,000 net new consumer checking accounts last quarter, marking six consecutive years of quarterly growth. It's also seeing strong growth in commercial and investment banking, credit card issuing, and wealth management. Every source of revenue increased for Bank of America last quarter.
NYSE: BAC
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The biggest drag on Bank of America's results over the last two years has been the rise in interest rates. The bank holds longer-dated securities than most of its competitors. As a result, when interest rates climbed in 2022 and 2023, Bank of America eventually saw its net interest income start declining. However, it's now set up to outperform going forward as interest rates come back down, and its net interest income is quickly approaching its previous peak.
Bank of America's progress over the last year has not gone unnoticed. The stock is up more than 50% from this time in 2023. That's led it to extend its valuation to nearly 1.6 times its tangible book value. Buffett sold shares in the third and fourth quarter last year, when its valuation looked even loftier. But at 1.6 times book value, it's not a bad price to pay for a company with the strength and momentum of Bank of America right now.
