When it comes to billionaire money managers, Berkshire Hathaway's (BRK.A 0.16%)(BRK.B 0.10%) Warren Buffett is in a class of his own. Since taking over as Berkshire's CEO six decades ago, he's overseen a jaw-dropping aggregate return in his company's Class A shares (BRK.A) of better than 6,321,000%, as of the closing bell on March 21.
What makes the Oracle of Omaha so special -- aside from his investment track record -- is his willingness to share his thoughts on the U.S. economy and stock market, as well as the characteristics he looks for when investing in wonderful companies.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
Warren Buffett is also quite the optimist. He's encouraged investors on more than one occasion not to bet against America, and firmly believes that the U.S. economy and stock market will grow over time. It's why he's constantly on the lookout for a good deal -- and what better place to find a good deal than from the stocks already held in Berkshire Hathaway's $285 billion portfolio.
Over the previous six weeks, regulatory filings show that Buffett added to Berkshire's existing stakes in six out of eight "indefinite" holdings.
The Oracle of Omaha finds a gusher
In Berkshire Hathaway's 2023 letter to shareholders, Warren Buffett outlined eight holdings that he viewed as indefinite. Two of these are companies that should come as no surprise to the investing community: Coca-Cola (KO +0.74%) and American Express (AXP +1.82%).
Truth be told, investors didn't need an annual letter from Buffett to know these are effectively "forever" holdings. Coca-Cola is Berkshire's longest continuously held stock (since 1988), with American Express its second longest-held position (since 1991).
But this letter to shareholders introduced six additional holdings that Berkshire's chief views as the forever type -- and he added to shares of each of them recently.
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Based on a Form 4 filing with the Securities and Exchange Commission, the Oracle of Omaha spent about $35.7 million to purchase a little over 763,000 additional shares of integrated oil and gas giant Occidental Petroleum (OXY 5.42%) on Feb. 7. Since the start of 2022, Berkshire's stake in Occidental has been built up from scratch to almost 265 million shares.
Warren Buffett doesn't put more than $12 billion to work in a company on a whim. Holding $12.7 billion worth of Occidental Petroleum common stock, along with more than $8 billion in preferred stock in Occidental, signals a strong belief that the spot price of crude oil will remain steady or head even higher.
The bull case for oil stems from a lack of investment during the COVID-19 pandemic. For three years, global energy companies significantly pared back their capital spending. Even with capital expenditures now back to normal, ramping up oil production to meet higher energy demand will be difficult. When an in-demand commodity is contending with potentially tight supply, it often bodes well for the spot price of that commodity.
A higher spot price for crude oil would be particularly good news for Occidental Petroleum, which generates a disproportionate percentage of its revenue from its upstream drilling operations. Although it does oversee transmission pipelines and downstream chemical plants, the juiciest margins and cash flow trace back to its drilling segment.
Image source: Getty Images.
Warren Buffett piles into Japan's five trading houses
The five other stocks Warren Buffett labeled as indefinite holdings in his 2023 annual letter to shareholders are Japan's trading houses: Mitsubishi (MSBHF 1.32%), Itochu (ITOCF 6.39%)(ITOCY +0.64%), Mitsui (MITSF 0.86%)(MITSY 0.01%), Sumitomo (SSUM.Y +1.11%)(SSUM.F 3.37%), and Marubeni (MARUY 0.69%)(MARUF +1.83%).
According to regulatory filings on Monday, March 17, Berkshire Hathaway increased its respective stakes in all five Japanese trading houses by more than one percentage point. Buffett's company recently received permission to gradually increase its stakes in all five companies beyond 10%.
One of the primary lures of these five critical businesses is that they have their proverbial hands in virtually every aspect of Japan's economy. Collectively, these five trading houses are involved in oil and natural gas development and production, energy infrastructure, food resources, healthcare, chemicals, and so on. They're integral to the success of Japan, and their operations are so widely diversified that there's no single industry capable of irreparably harming any of these five trading houses.
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Mitsubishi, Itochu, Mitsui, Sumitomo, and Marubeni also speak to Warren Buffett's shareholder-first philosophy. The management teams of all five Japanese trading houses have reasonably low compensation packages, and all five companies offer shareholder-friendly capital-return programs, which can include share buybacks and dividends. Companies that regularly share a percentage of their profits with investors via dividend tend to be recurringly profitable and time-tested.
But perhaps the primary lure for Mitsubishi, Itochu, Mitsui, Sumitomo, and Marubeni as forever holdings are their respective valuations.
At the moment, the stock market is historically pricey. The S&P 500's Shiller price-to-earnings (P/E) ratio closed at 35.28 on March 21, which is more than double its 154-year average multiple of 17.22. More importantly, the previous five instances where the Shiller P/E Ratio topped 30 were eventually followed by big declines for Wall Street's major indexes. Warren Buffett has had a hard time locating bargains, which is why he's been a net seller of stocks, to the tune of $173 billion, for nine consecutive quarters.
Japan's five trading houses offer value amid a pricey stock market. While their growth rates aren't jaw-dropping, their respective trailing-12-month P/E ratios of 9 to 12 are quite attractive.
