There isn't a money manager on Wall Street who commands more attention than Berkshire Hathaway (BRK.A 0.16%)(BRK.B 0.11%) CEO Warren Buffett -- and there's a good reason why.
Since ascending to the CEO chair 60 years ago, the aptly dubbed "Oracle of Omaha" has overseen a cumulative return in his company's Class A shares (BRK.A) that's approaching 5,800,000%, as of the closing bell on July 14. This is nearly 140 times greater than the return of the benchmark S&P 500 over six decades, including dividends.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
Given Buffett's unwavering desire to secure a good deal and his love of businesses with sustainable competitive advantages, some investors choose to ride his coattails to long-term success.
Although Buffett, who's set to retire from the CEO role at years' end, and his top advisors are overseeing more than three dozen stocks in Berkshire's $292 billion investment portfolio, this portfolio is quite top-heavy. This is to say that Buffett has concentrated a significant portion of his company's invested assets -- 58%, or almost $169 billion -- in just four unstoppable stocks.
Apple: $62.6 billion (21.5% of invested assets)
Although Apple (AAPL +2.65%) has been Warren Buffett's top investment holding at Berkshire Hathaway for years, the gap between it and Berkshire's second-largest holding by market value has shrunk considerably. This likely has to do with Berkshire's billionaire chief selling 67% of his company's stake in Apple (more than 615 million shares) since Sept. 30, 2023.
NASDAQ: AAPL
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Don't get me wrong -- Warren Buffett still appreciates Apple for a variety of reasons I'll touch on momentarily. But with the peak marginal corporate income tax rate affixed at its lowest level since 1939, Buffett viewed locking in some of his company's substantial gains as a smart strategic move.
While Buffett can't explain how Apple iPhones work, he does have a good bead on consumer behavior. Apple has a rich history of building trust with the purchasers of its products, and consumers have tended to be particularly loyal to the Apple brand. Since a 5G-capable version of the iPhone was introduced during the fourth quarter of 2020, it's had little trouble maintaining a majority of U.S. smartphone market share.
Berkshire's chief has also heaped praise on Apple CEO Tim Cook for his leadership. Though net sales of physical devices have been relatively stagnant in recent years, Cook is overseeing steady growth in Apple's subscription services. This segment should enhance customer loyalty and bolster the company's margins over time.
However, Apple's not-so-secret weapon is its world-leading capital-return program. Since initiating a buyback program in 2013, it's spent $775 billion to repurchase more than 43% of its outstanding shares. Buying back stock has had a decisively positive impact on its earnings per share and made its stock more attractive to value-seeking investors.
Image source: Getty Images.
American Express: $48.7 billion (16.7% of invested assets)
Billionaire Warren Buffett's No. 2 holding is credit-services provider American Express (AXP +1.75%). Though Berkshire Hathaway hasn't purchased shares of "AmEx" (as American Express is commonly known) in quite some time, a 130% increase in AmEx's stock over the trailing-three-year period is giving Apple a run for its money.
The reason American Express has made for such a rock-solid long-term investment -- it's been a continuous holding for Buffett's company since 1991 -- is its ability to benefit from both side of the transaction aisle. On one hand, it's America's third-largest payment processor by credit card network purchase volume. Facilitating transactions generates AmEx fee revenue from merchants.
The key for American Express is that it also acts as a lender to businesses and consumers via its credit cards. This allows AmEx to reap the benefits of annual fees and/or interest income. Though being a lender does expose the company to potential credit delinquencies and loan losses during recessions, the U.S. economy spends a disproportionate amount of time expanding.
Further, AmEx has a knack for attracting high-earning clientele. High-earning cardholders are less likely than low- and middle-income individuals to alter their spending habits or fail to pay their bills during economic hiccups.
There's a reason American Express is one of eight stocks Warren Buffett considers "indefinite" holdings.
NYSE: BAC
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Bank of America: $29.7 billion (10.2% of invested assets)
In similar fashion to Apple, Berkshire Hathaway's billionaire investor has been notably paring down his company's stake in Bank of America (BAC +0.75%). Since July 17, 2024 -- we know this specific date thanks to required Form 4 filings with the Securities and Exchange Commission -- Buffett has green-lit the sale of more than 401 million shares of BofA stock. Nevertheless, it's still Berkshire's third-largest holding by market value.
Buffett's selling activity in Bank of America likely boils down to a mix of profit-taking with an advantageous peak marginal corporate income tax rate, and the expectation that interest rates will further decline with the Federal Reserve in a rate-easing cycle.
Among money-center banks, BofA is the most sensitive to changes in interest rates. When the nation's central bank boosted the federal funds rate by 525 basis points from March 2022 to July 2023, no large bank benefited more, in terms of interest income, than Bank of America. But when interest rates decline, it might feel more pain than its peers.
Berkshire Hathaway's investment lead also tends to pack his company's $292 billion portfolio with companies that can take advantage of the nonlinearity of economic cycles.
As alluded earlier, the U.S. economy spends much more time in the sun than under the proverbial clouds. Whereas the average U.S. recession has resolved in 10 months since the end of World War II, the typical economic expansion sticks around for roughly five years. Lengthy periods of expansion have allowed BofA to prudently expand its loan portfolio over time.
NYSE: KO
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Coca-Cola: $27.8 billion (9.5% of invested assets)
Lastly, the Oracle of Omaha has close to $28 billion invested in consumer staples giant Coca-Cola (KO +0.74%). Like AmEx, Coca-Cola is a longtime holding of Berkshire Hathaway (since 1988) that Buffett considers something of a "forever" stock.
The foundational talking point of Coca-Cola's operating model is that it sells a basic need good: beverages. No matter how well or poorly the stock market or U.S. economy are performing, consumers need food and beverages. This means Coca-Cola's operating cash flow tends to be highly predictable in virtually any economic climate.
Another sustainable edge for this company has been its geographic diversity. With the exception of North Korea, Cuba, and Russia (the latter has to do with its invasion of Ukraine in 2022), Coca-Cola has ongoing operations in every other country. This provides consistent cash flow in developed markets, and organic sales growth potential in faster-growing emerging markets.
The Coca-Cola investment story is a reflection of its ability to connect with consumers. It's been able to rely on more than a century of history to engage with mature audiences, and has leaned into artificial intelligence (AI) as a means of tailoring its advertising for younger audiences. Few companies have more consistently crossed generational gaps with such ease.
The icing on the cake for Warren Buffett is the delectable yield Berkshire is netting annually from its Coca-Cola position. With a minuscule cost basis in Coca-Cola of $3.2475 per share, Berkshire Hathaway is securing a nearly 63% annual yield on cost. There's no reason for Buffett or his team to ever sell this stake in Coca-Cola.
