New CEO Greg Abel just delivered his first annual letter to Berkshire Hathaway's (BRKA 0.46%)(BRKB 0.38%) shareholders, a tradition that former CEO Warren Buffett carried out for the past six decades. The letter was 18 pages and provided a ton of details on how Abel plans to run the company, a detailed overview of all of Berkshire's operating businesses, and, of course, comments on Berkshire's massive, roughly $318 billion equities portfolio.
Interestingly, Abel called out four stocks that Berkshire owns, which together account for a large portion of the portfolio. These are "businesses we understand well, have a high regard for their leaders, and expect will compound over decades." Abel also said he expects "limited activity in these holdings," providing big clues about Berkshire's investment strategy that Buffett rarely did.
Here are the four stocks Abel referenced that he expects to compound for decades.
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Apple -- 18.9% of portfolio
The iconic consumer tech giant Apple (AAPL 1.93%) has long been the largest position in Berkshire's portfolio, at one point accounting for 40% of it. Buffett reportedly got interested in the company, which Berkshire first bought in 2016, when Buffett saw how distraught his friend became when he thought he'd lost his iPhone.
NASDAQ: AAPL
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Still, some might have been a bit surprised to see Abel include Apple on this list, since Berkshire has trimmed its stake in Apple by about 75% in recent years. As Buffett has said in the past, Berkshire usually does not trim positions, but will eventually sell the entire stake once it starts selling. Apple could be a unique case, given how large the position has become and how well large tech and artificial intelligence stocks have performed in recent years. At the time, Buffett may have thought it made sense to take gains and lower exposure after such a strong run.
Apple has received some criticism in recent years for not having as strong an AI strategy as its peers in the "Magnificent Seven." But it also hasn't devoted hundreds of billions to AI-related capital expenditures, a conservative approach that the team at Berkshire probably appreciates. The company also continues to buy back stock, another attribute Buffett and the team have frequently looked for in their holdings.
American Express -- 14.7%
No stock has been more of a constant in Berkshire's portfolio than the payments and credit card company American Express (AXP 1.39%). Buffett actually first purchased American Express in 1964, when the company was struggling. It added significantly to its stake in the 1990s and hasn't touched it since. During the pandemic's height, Buffett referred to American Express' brand as "special" and urged the company to protect it at all costs.
Buffett is absolutely right. How many companies do you know that can charge a nearly $900 annual subscription to one of their platinum cards? American Express is not just a regular consumer lender, but the cream of the crop. The company attracts higher-income borrowers who tend to be more resilient during a recession.
NYSE: AXP
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But the real differentiator is its closed-loop payment network, which facilitates payment transactions between merchants and their customers and generates steady, recurring fee revenue. Investors love payment networks because setting up the network takes time and creates a strong moat. AmEx is another company that buys back a lot of stock, and that has also grown earnings tremendously over the years.
Coca-Cola -- 10.2%
The iconic beverage company Coca-Cola (KO 0.10%) is another stock Berkshire has owned for decades, and it's proven to be one of the top defensive consumer staple stocks in the market. Unlike many other hedge funds, Berkshire's team likes to think long term and buy stocks that it can own forever. While Coca-Cola is not your fast-growing AI stock, it also has advantages.
Coca-Cola is a company that will endure for decades because AI can't replicate physical beverages, at least as far as I know. Sure, AI may play a role in making Coca-Cola's products. It's no surprise to see the stock up over 17% this year. This is why you buy defensive stocks -- for when there are structural concerns about the economy or significant geopolitical concerns.
NYSE: KO
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Coca-Cola is also a Dividend King, meaning it has paid and increased its annual dividend for at least 50 years. In fact, Coca-Cola has achieved this feat for 63 years. The company also still has an attractive 2.6% dividend yield, despite the surge in share price.
Moody's -- 3.7%
The financial services, software, and ratings company Moody's (MCO 4.36%) gets much less attention than the three stocks mentioned above, so it may have been a little surprising to see it make Abel's exclusive list. However, Berkshire first bought the stock back in 2000, and it is the eighth-largest holding in Berkshire's portfolio.
One of Moody's key businesses is providing ratings on companies' debt. These ratings are imperative because they help determine how risky that debt is and, therefore, how it is priced. Virtually anyone raising debt needs a rating. Moody's is one of three main players that control about 95% of this market, which is also heavily regulated, an attribute that tends to keep out competition.
Moody's has another strong, growing unit that provides data and analytical tools that businesses use to make critical decisions. AI could affect this business, but the company has a deep foothold, making it likely that it can adapt and use AI to its advantage rather than being totally replaced by it.
