The US economy has a century-long track record of producing the world’s most valuable companies:
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American steel became the first company in the world to be valued at $1 billion in 1901.
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In 1955, General engines became the first company to be valued at $10 billion.
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Industrial giant General Electric took its portfolio of businesses – from aerospace to financial services – to a valuation of $100 billion in 1995.
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Apple (NASDAQ: AAPL) crossed the next major threshold in 2018 when it became the first publicly traded company to amass a market capitalization of $1 trillion.
Today Apple is joined by Microsoft, Amazon, Alphabet, MetaplatformsAnd Nvidia in the trillion dollar club. But I think there’s another company about to earn a membership.
Warren Buffett has led Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) to a whopping 4,384,748% return since 1965, giving it a valuation of nearly $900 billion. The conglomerate holds substantial positions in private and public success stories such as GEICO, Coca-Colaand even Apple.
This is why Berkshire could become the first non-tech company in the US to join the $1 trillion club within the next 12 months.
A masterclass in keeping it simple
Buffett is a true value investor. He likes to buy good companies at a cheap price, and sometimes great companies at a fair price, with the intention of holding them for decades. He looks for companies with steady growth, consistent profitability and strong management teams. He especially likes companies that return money to shareholders through dividends and share buybacks.
Here’s an example that perfectly illustrates the effects of the compounding that helped Buffett build his empire. Berkshire has spent $1.3 billion accumulating shares American Express (NYSE:AXP) between 1991 and 1995. Today, that asset has grown in value to a whopping $36.8 billion. In fact, Amex shares are earning Berkshire just by owning them, paying Berkshire $364 million in dividends in 2023 alone. That dividend means that Berkshire will recoup its entire initial investment in Amex every four years, just from the dividends. That’s just one of the conglomerate’s many success stories.
Berkshire owns a long list of high-quality companies
Berkshire was originally a textile company and was on the brink of failure when Buffett stepped in to buy it in 1965. When he realized he couldn’t turn it around anymore, he transformed it into a holding company for various investments.
Since then, Berkshire has purchased many companies outright, including GEICO, Duracell and Dairy Queen. But it also owns a portfolio of 47 publicly traded stocks and securities worth $377.9 billion. This portfolio includes the shares of Amex, Coca-Cola and Apple.
Apple is Berkshire’s largest holding company, valued at $149.9 billion, accounting for 39.7% of the stock portfolio. It would be even bigger, but the conglomerate recently sold 13% of its position (reportedly for tax reasons). Considering that Berkshire has only spent about $38 billion accumulating Apple stock since 2016, this investment has paid off.
I also want to take a moment to highlight Coca-Cola stock. Berkshire bought $1.3 billion worth of shares in the beverage giant between 1988 and 1994, but never sold any. Today, that position is worth $25.2 billion, and in 2023 alone Berkshire paid $736 million in dividends.
You might notice that the Coca-Cola story is very similar to the Amex story, and it is. What it points to is that Buffett hasn’t caught lightning in a bottle, and his strategy isn’t exceptional either. In fact, Berkshire’s long-term positions are in bank of America, VisaAnd Moodys followed a similar trajectory, thanks to Buffett’s simple formula, which focused on patient investing.
If investors are willing to take a long-term view, they can also reap the benefits of compounding in the same way.
Berkshire’s market-based returns are supported by strong financial growth
Berkshire Class A shares have increased in value by 4,384,748% between 1965 and 2023. That translates to a compound annual return of 19.8%, which is almost double the benchmark average annual return of 10.2% S&P500 Table of contents.
The outperformance is staggering in dollar terms. A $1,000 investment in Berkshire stock in 1965 would have been worth $43.8 million by the end of 2023! The same investment in the S&P 500 would be worth only $312,230.
Berkshire has the financial results to back up its incredible returns. The company generated $49.3 million in revenues in 1965, a figure that grew to $364.4 million. billion last year. Berkshire’s diverse portfolio of businesses contributed to this latest figure: $83.4 billion came from insurance premiums; $101.4 billion came from the railroad, utility and energy companies; and $155.6 billion came from sales and services of the various entities under the Berkshire umbrella.
Berkshire also grew its net income from just $2.3 million in 1965 to a whopping $96.2 billion in 2023.
Berkshire could join the $1 trillion club within a year
Considering that Berkshire has a market cap of almost $900 billion at the time of writing, the shares only need to rise 11% from now to catapult the company into the $1 trillion club. Its 58-year track record of delivering an annual return of (on average) 19.8% suggests it’s a shoo-in to get there within the next twelve months.
A few things will work in Berkshire’s favor going forward. For starters, Apple just announced a $100 billion stock buyback, the largest in corporate America history. That will organically increase the conglomerate’s equity stake in the iPhone maker. Additionally, top companies like Apple, American Express and Coca-Cola continue to increase their dividends, meaning Berkshire is likely to receive a record payout this year.
The US Federal Reserve is also likely to cut interest rates in the second half of 2024. That could lead to an increase in economic activity, which should boost many of the companies in Berkshire’s portfolio, especially those that serve consumers and those in the transportation and logistics sector.
Finally, Buffett remains a strong believer in the company’s future. He authorized $9.2 billion in Berkshire stock buybacks in 2023 and another $2.6 billion in the first quarter of 2024. Buffett has now accounted for $71.4 billion in stock buybacks since 2020 alone taken, which is more than he has wagered on any other stock. .
Absent external economic shocks, Berkshire seems almost certain to be the first non-tech company in the US to join the $1 trillion club in the coming year.
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. American Express is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Alphabet, Amazon, Apple, Bank of America, Berkshire Hathaway, Meta Platforms, Microsoft, Moody’s, Nvidia, and Visa. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors, long January 2026 $395 calls on Microsoft, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
1 Unstoppable Stock Pack That Joins Nvidia, Microsoft, Apple, Amazon, Alphabet and Meta in the $1 Trillion Club was originally published by The Motley Fool
