At the end of 2013 -- the latest disclosure -- Berkshire Hathaway has more than $118 billion in stock investments across 50 companies. Among them, General Electric (NYSE:GE), Coca-Cola (NYSE:KO) and Bank of America (NYSE:BAC) come out on the top of my list as worthy investments.
The diverse deliverer
In 2006, Buffett voiced his admiration for GE CEO Jeff Immelt, saying he was one of three "giant-company managers whom I greatly admire." In 2011, Berkshire netted a $1.2 billion profit on the $3 billion he invested in the preferred stock of the company during the financial crisis.
But Buffett wasn't content with the 40% gain he made in GE. Earlier this year we learned Berkshire Hathaway upped its position in the common stock -- what we can all buy -- of General Electric from $14 million to nearly $300 million by the end 2013.
In 2010, Buffett remarked, "money will always flow toward opportunity, and there is an abundance of that in America," and in 2008, CNN notes he "called GE "the symbol" of American business with strong global brands and business divisions."
And those strong global brands and business divisions are one of the most compelling things about GE. As shown in the chart below, it has a distinct ability to deliver profits from a diverse range of business units, all of which have distinct opportunities.
Moving beyond diversification, GE's biggest priority when it comes to the money it earns -- its net earnings from continuing operations have risen by 40% since 2009 to $15.2 billion -- is returning it back to its shareholders through dividends. Such a commitment is compelling because it shows returns are poised to continue to increase.
I learned long ago diversification, dividends and disciplined management are critical to the success of both investments and companies, and GE clearly excels in these three.
The beloved beverage
Warren Buffett has praised Coca-Cola for decades. It makes sense when you consider the 1.3 billion investment he amassed in the 1990's is now worth $16 billion -- and that's without ever including the 3% dividend it pays.
While he once shed light on how one could've turned $40 into $10 million by investing in the beverage company and holding onto it until today, it turns out there's more value still to be had.
The thought of investing in soda often scares some away because total consumption of carbonated sodas fell by 3% in the US last year. And while its volume also fell, Coke actually managed to continue to widen the gap in market share between it (42.4% of beverages) and PepsiCo (27.7%) as Coke's volume fell by 2.2% whereas Pepsi's dropped 4.4%.
Despite falling total consumption, Coke actually saw its revenue in the U.S. rise from 2012 to 2013, and it is up by more than $1.1 billion over where it stood in 2011.
Part of the reason for this is the major positions in Honest Tea and Glaceau Vitaminwater, which appeal to the more health-conscious consumers in America and beyond.
While sales in America may not be red-hot, according to Coke, individuals worldwide consumed an average of 46 eight-ounce Coca-Cola products per year in 1992, yet that had more than doubled to 94 in 2012. There are no signs of its demanding falling anytime soon.
Coca-Cola's commitment to new products, growing demand, and its large distribution network show that while the stock has had a remarkable run the last 100 years, it's poised to still continue.
Just last week, Buffett said "we never sold a share of Coke" and "never had any plans to sell any." If that's not enough of a compelling reason, I'm not sure what else would be.
The beaten-down bank
So Berkshire's position in Bank of America isn't exactly in the common stock. Its $5 billion stake in its preferred shares give it the option to buy up to 700 million shares by 2021 for an additional $5 billion, which at last count would be worth more than $11 billion.
It's a position Buffett greatly values. In the latest annual report he noted: "We are likely to purchase the shares just before expiration of our option. In the meantime, it is important for you to realize that Bank of America is, in effect, our fifth largest equity investment and one we value highly."
This shows we too should consider it ourselves.
Bank of America could be shelling out nearly $25 billion in legal settlements this year alone is troubling, but this isn't an investment to consider for just the next year or two, but instead, for the long term.
It has a compelling valuation, as its price-to-tangible book value stands at 1.2 versus 2.2 for Wells Fargo, Berkshire Hathaway's largest stock holding. And while value alone doesn't warrant an investment, it has a proven ability to generate returns, as its core lines of business saw earnings rise by 12% to $16.1 billion in 2013, with a return on allocated capital of 17.3%.
Bank of America has a number of scary things surrounding it, but a deeper dive into its core operations shows how powerful its capabilities are, and the possibilities that will await it once all of its problems are solved.
Berkshire Hathaway and Warren Buffett have no shortage of great investments, but these three stand above the rest.
Follow along as we countdown the days until Berkshire Hathaway's annual shareholder meeting in Omaha, Nebraska on May 3. A handful of Fools will be attending the event and live chatting with other Fools around the globe! Click HERE to set a reminder for yourself about the live chat!
The previous articles in our "12 Days of Berkshire" series:
12 Reasons Warren Buffett Is an Incredible Investor and How You Can Learn From Him