On Jan. 1, a new era began for trillion-dollar conglomerate, Berkshire Hathaway (BRKA 0.46%)(BRKB 0.34%). With Warren Buffett retiring from the CEO role on Dec. 31, Berkshire's day-to-day operations and its $319 billion investment portfolio are now the responsibility of successor Greg Abel.
For the most part, Abel has vowed to follow in the Oracle of Omaha's footsteps, which includes holding near and dear the eight existing stocks Buffett described as "indefinite" holdings in a February 2024 letter to shareholders. This includes Berkshire's two longest-tenured stocks, Coca-Cola and American Express, as well as Occidental Petroleum and all five Japanese trading houses.
Warren Buffett retired as Berkshire Hathaway CEO on Dec. 31. Image source: The Motley Fool.
But just two months into his new role as CEO, Abel is leaving an indelible mark by adding two more stocks to Berkshire's "forever" list.
The Oracle of Omaha's successor plans to hold these two stocks indefinitely
In Abel's first letter to shareholders, under "equity investments," he had this to say:
A large portion of our portfolio is concentrated in a small number of American companies, such as Apple (AAPL 1.93%), American Express, Coca-Cola, and Moody's (MCO 4.36%) -- businesses we understand well, have a high regard for their leaders, and expect will compound over decades.
NYSE: MCO
Key Data Points
The addition of rating agency Moody's to the ranks of Berkshire Hathaway's forever holdings isn't a surprise. It's the third-longest tenured stock in the portfolio (since 2000) and sports one of the highest yields on cost. Berkshire's cost basis of approximately $10.05 per share in the company, compared to Moody's base annual dividend of $4.12/share, works out to a 41% annual yield, relative to cost. There's no incentive to ever sell.
Furthermore, Moody's is ideally positioned to navigate any economic climate. Moody's Investors Services is primed to benefit if interest rates decline and corporate/government debt issuances increase. Meanwhile, periods of economic uncertainty favor Moody's Analytics, which is used by businesses for financial risk management and economic research.
However, Apple's addition to the ranks of the forever holdings is a surprise.
Image source: Apple.
Is Apple really a forever holding for Berkshire's new CEO?
Abel's mention of Apple as a potential multidecade compounder is an eyebrow-raiser, given that the now-retired Warren Buffett had sold 687,642,574 shares of Apple -- 75% of Berkshire's total stake -- in the nine quarters leading up to his retirement.
On the surface, Apple checks several boxes that Buffett and Abel would typically look for in a long-term investment. It has an exceptionally loyal customer base, a trusted management team, and an unmatched share repurchase program. Since initiating a buyback program in 2013, Apple has spent more than $841 billion to retire over 44% of its outstanding shares. This has had a markedly positive effect on its earnings per share.
NASDAQ: AAPL
Key Data Points
But Apple isn't a cheap stock, and Greg Abel is just as much a stickler for value as his predecessor. When Buffett initially opened a position in Apple in early 2016, it was trading at a price-to-earnings (P/E) ratio of between 10 and 15. Apple now commands a P/E ratio of 33.4 and is coming off a three-year stretch (2022-2024) in which its physical device sales growth completely stalled.
Although Abel has made clear that Apple stock isn't going anywhere, don't be surprised if Berkshire's stake in its current No. 1 holding is further whittled down.
