Warren Buffet was born in 1930 and bought his first stock at the age of 11. By 1965, he was running his own investment company called Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B)where he further builds on his reputation as one of the world’s best investors.
Berkshire has grown into a conglomerate with several wholly owned subsidiaries and a portfolio of 47 publicly traded stocks and securities.
Berkshire’s largest holding company is Applewhich in 2018 became the first company in the world to reach $1 trillion in revenue. Since then Microsoft, Nvidia, Amazon, AlphabetAnd Meta platforms have also reached that milestone.
Berkshire could soon become the first non-tech company in the U.S. to join them. The stock has delivered an incredible compound annual return of 19.8% since 1965, giving the company a valuation of $922 billion. Here’s why it could cross the $1 trillion mark within the next year.
Buffett uses a simple investment strategy
Buffett is a value investor, meaning he likes to buy great companies at attractive prices with the intention of holding on to them for the long term. Robust profitability, reliable growth, strong management teams, and shareholder-friendly programs like stock buybacks and dividend plans are just a few of the characteristics he looks for when deciding where to invest.
Time is Buffett’s greatest ally, as he relies on the magic of compounding to build his wealth for him. There is no better example than Berkshire’s investment in Coca Cola. Berkshire spent $1.3 billion buying up shares of the beverage giant between 1988 and 1994, and it still owns them all. That position is now worth a whopping $27.5 billion.
In addition to the huge capital gains, Berkshire received $736 million in dividend payments from Coca-Cola in 2023, and the company is expected to earn even more this year!
Berkshire’s other long-term investments in American Express, Moody’s Corpand Apple (to name a few) are similar success stories.
Berkshire invests in high-quality companies
Berkshire Hathaway was originally a textile company. It was on the verge of failure before Buffett bought it in 1965, but he quickly realized he couldn’t save the legacy business, so he turned it into a holding company for his various investments.
Over the years, Berkshire has acquired entire companies, including Duracell, GEICO Insurance, and Dairy Queen. In addition, the conglomerate’s portfolio of publicly traded stocks and securities is worth $302.4 billion. As I mentioned above, Apple is the largest holding in that portfolio.
Berkshire has spent about $38 billion accumulating Apple shares since 2016, and despite selling more than half of its stake this year, its remaining stake is still worth more than $86 billion.
Bank of America and American Express are Berkshire’s second and third largest holdings. It also has significant positions in energy companies Chevron And Occidental petroleumworth $17.8 billion and $14.9 billion respectively.
Some of Berkshire’s smaller positions include: Visa ($2.1 billion), MasterCard ($1.8 billion) and even Amazon ($1.6 billion). Berkshire first bought Amazon stock in 2019, and Buffett has expressed regret for not recognizing the opportunity sooner. Even the best investors in the world make mistakes!
Berkshire’s financial growth is supporting its stock’s market-beating gains
Berkshire shares rose 4,384,748% between 1965 and 2023, for a compound annual return of 19.8%. That crushed the gain of 31,223% (10.2% compounded annually) in the S&P 500 over the same period.
In dollar terms, an investment of just $1,000 in Berkshire stock in 1965 would have been worth a whopping $43.8 million by the end of 2023. The same investment in the S&P 500 would have grown to just $313,230. Berkshire continues to outperform the S&P 500, gaining 19.1% this year versus just 12.7% for the index.
Berkshire generated $183.5 billion in revenue in the first half of 2024 (ended June 30), up 3.1% from the same period last year. More than $76.3 billion came from sales and services of the conglomerate’s various business interests, and another $43.4 billion came from insurance premiums. The energy and utilities businesses also contributed $35.7 billion.
Berkshire also reported net income of $43.3 billion for the first half of the year, so the conglomerate is also very profitable.
While Berkshire’s revenue growth has been modest so far through 2024, investors should take a long-term view. The conglomerate generated $49.3 million in revenue in 1965, and that figure is on track to surpass $368.6, according to Wall Street’s consensus estimate. billion until 2024!
Berkshire could join the $1 trillion club within a year
Berkshire has a market cap of $922 billion as of this writing, so the stock only needs to rise another 8.5% to get the conglomerate into the $1 trillion club. Given its 58-year track record of 19.8% annual growth — and 2024 gains of 19.1% so far — it seems likely that will happen within the next year. Mathematically, it could hit the milestone in the next six months.
That said, Berkshire is now sitting on a record $277 billion in cash, thanks in part to its recent sale of Apple shares. Cash typically yields less than growth assets like stocks, so that could be a near-term headwind to reaching the $1 trillion club. On the upside, it positions Berkshire perfectly to seize new opportunities that could fuel long-term growth.
Additionally, Berkshire is on track to earn record dividends from its top holdings this year, as Apple, Bank of America, American Express and Coca-Cola have all increased their payouts so far. Additionally, the U.S. Federal Reserve could cut interest rates as much as three times by the end of 2024, which will be a tailwind for Berkshire’s consumer, transportation and logistics businesses, which are sensitive to swings in economic growth.
Finally, Buffett authorized the repurchase of $2.9 billion of Berkshire shares in the first half of 2024 as a way to return cash to shareholders, a clear sign that he still believes the conglomerate represents a good value. As my colleague Sean Williams points out, it brings Berkshire’s total buybacks to nearly $78 billion in just the past six years, more than Buffett has put into any other stock.
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Randi Zuckerberg, former chief market development officer and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, 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. American Express is an advertising partner of The Ascent, a Motley Fool company. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Bank of America, Berkshire Hathaway, Chevron, Mastercard, Meta Platforms, Microsoft, Moody’s, Nvidia and Visa. The Motley Fool recommends Occidental Petroleum and recommends the following options: long Jan 2025 $370 calls on Mastercard, long Jan 2026 $395 calls on Microsoft, short Jan 2025 $380 calls on Mastercard, and short Jan 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
1 Unstoppable Stock That Will Join Nvidia, Apple, Microsoft, Amazon, Alphabet and Meta In The $1 Trillion Club was originally published by The Motley Fool
