For the better part of six decades it has Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett gives a masterclass in investing for Wall Street. Since ascending to the role of CEO in the mid-1960s, he has seen a cumulative return on his company’s Class A shares (BRK.A) of 5,561,176%, as of the closing bell on December 12, nearly doubling the average annual return. total return, including dividends, of the benchmark S&P500.
Significantly outperforming Wall Street’s most followed stock index has earned the Oracle of Omaha the following. That’s why investors eagerly await Berkshire’s Form 13F filings every quarter so they can see which stocks Buffett has bought and sold.
While the Berkshire chief has historically invested in companies with sustainable moats and strong management teams, perhaps the most defining characteristic of Buffett’s investment philosophy is his penchant for concentration. He believes his best ideas are worth an outsized investment.
As we get ready to turn the page to a new year, Warren Buffett appears poised to enter 2025 with 66% ($199.1 billion) of the $301 billion portfolio he manages at Berkshire Hathaway invested in the following five unstoppable shares.
Although tech goliath Apple (NASDAQ: AAPL) remains the largest holding company in Berkshire with a considerable For this amount, it’s worth noting that Buffett has overseen the sale of a total of more than 615 million shares of Apple stock over the past four quarters ending September 30.
At Berkshire Hathaway’s annual shareholder meeting in May, Buffett believed tax purposes were behind the recent selling activity. He hinted that the corporate tax rate is likely to rise, which would make capturing significant unrealized profits at a favorable low corporate tax rate a smart move.
In retrospect, this did not work as planned. With Donald Trump winning in November, corporate taxes are likely to remain at their lowest levels since 1939, or perhaps even lower.
Despite cutting two-thirds of Berkshire’s stake in Apple, Warren Buffett continues to appreciate consumers’ love for the Apple brand and Tim Cook’s stellar leadership. Cook is overseeing an ongoing transformation that will see his company focus on higher-margin subscription services.
Additionally, Buffett is a big fan of robust capital return programs. In addition to paying out $1 per share in dividends every year — Berkshire is on track to collect $300 million in dividend income from its Apple stock by 2025 — it has the largest stock buyback program in the world. It has repurchased $700.6 billion of common stock since the beginning of 2013.
The second-largest position in Berkshire’s portfolio, by market value, happens to be its second-longest-held stock: credit services company American Express (NYSE:AXP). ‘AmEx’, as the company is better known, has been a continuous holding company since 1991.
There is no sector where Warren Buffett would rather use his company’s money than the financial sector. The simple reason for this is that financial stocks are cyclical. Buffett astutely recognizes that while economic downturns are normal and inevitable, they don’t last very long. Companies like American Express can benefit from a disproportionately longer growth period.
AmEx’s secret sauce is its ability to capitalize on both sides of the transaction counter. It is the No. 3 payment processor by purchase volume across the credit card network in the US, which means it charges fees when processing payments for merchants. But it is also a lender, which allows it to generate annual fees and/or interest income from its cardholders. Long periods of growth benefit both aspects of the business.
Moreover, AmEx traditionally attracts high earners. Affluent cardholders are less likely than middle-income consumers to change their purchasing behavior during minor economic disruptions, or to default on their bill.
Finally, thanks to a cost base of approximately $8.49 per share in AmEx, Berkshire Hathaway generates a 33% dividend yield relative to costs.
The Oracle of Omaha’s third largest holding company, Bank of America (NYSE: BAC)is another stock that he has been selling more and more lately. Based on Form 4 filings, Buffett has sold more than 266 million shares of BofA stock since July 17.
The reason for this sales activity may be similar to Apple’s. Berkshire Hathaway enjoys significant unrealized gains from its stake in Bank of America, and Buffett may want to lock in these gains at a favorable low tax rate.
On the other hand, it’s possible we’re witnessing Warren Buffett’s displeasure with stock valuations for the broader market. Buffett has sold more shares than he bought for eight straight quarters, which is a pretty strong indication that he and his top advisors are struggling to find value in a historically expensive stock market. While BofA isn’t particularly pricey, it’s no longer the screaming bargain, relative to book value, that it once was.
On the plus side, Bank of America is the most interest rate sensitive of America’s largest banks by total assets and has benefited enormously from the Fed’s steepest rate hike cycle since the early 1980s. Even with the country’s central bank recently embarking on an interest rate easing cycle, this slow process should allow BofA to continue reaping the benefits of higher interest rates.
In keeping with the theme, BofA also offers a healthy capital return program. Berkshire is on track to collect nearly $797 million in dividend income from Bank of America by 2025. Moreover, BofA’s board isn’t shy about approving share buybacks when the U.S. economy is growing.
The colossus of consumer goods Coca-cola (NYSE:KO) should enter the new year as Berkshire Hathaway’s fourth-largest holding company by market cap. It is also the longest-held stock – since 1988 – in the $301 billion portfolio overseen by Warren Buffett.
Buffett likes to keep things simple and not think too much about his investments. Coca-Cola has an exceptionally strong and well-known brand, and it sells a basic necessity (beverages) that will be purchased no matter how well or how poorly the American or global economy performs. This leads to a very predictable and transparent operational cash flow year after year.
Another thing that improves the predictability of Coca-Cola’s bottom line is its virtually unparalleled geographic diversity. With the exception of North Korea, Cuba and Russia, Coca-Cola has ongoing operations in every other country. This means steady cash flow in developed markets, but also the ability to move the organic growth needle in emerging markets. According to Kantar’s annual ‘Brand Footprint’ report, Coca-Cola products have been the most chosen products on store shelves for twelve years in a row.
Credit also goes to Coca-Cola’s marketing team, which has masterfully bridged generational gaps to connect with consumers. The company relies on digital channels and artificial intelligence (AI) to reach its younger audience, while leaning on well-known brand ambassadors and its former holiday business to connect with its adult consumers.
Would it surprise you if I also said that Coca-Cola has a shareholder-friendly capital return program? The company has increased its payouts for 62 years in a row. Based on Berkshire’s cost basis for Coca-Cola of just under $3.25 per share, Buffett’s company earns an annual return on costs of 60%.
Warren Buffett’s No. 5 holding, which combined with Apple, American Express, Bank of America and Coca-Cola will account for 66% of Berkshire Hathaway’s $300 billion-plus portfolio by 2025, is none other than an energy giant Chevron (NYSE:CVX).
There is more than $18 billion in Chevron, along with another $12.3 billion Western petroleumis a pretty clear indication that Berkshire’s CEO expects the spot price of oil to remain high or rise – and there are certain macro factors driving this sentiment.
For example, Russia’s invasion of Ukraine in February 2022 raises questions about Europe’s energy supply needs. In addition, three years of reduced capital investment by major energy companies during the COVID-19 pandemic will likely make it difficult to increase global crude oil supply in the near term. When the supply of a high-demand good is limited, it tends to push up the price of that good.
However, Chevron is also an integrated energy company. While it gets its best margins from drilling, it also operates transmission pipelines, along with downstream chemical plants and refineries. These supporting segments serve as a hedge in the event that the spot price of crude oil falls.
Like Buffett’s other top holdings, Chevron has a rich capital returns program. The board of directors has approved dividend increases for 37 years in a row and has a $75 billion stock buyback program underway.
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Bank of America and American Express are advertising partners of Motley Fool Money. Sean Williams has positions at Bank of America. The Motley Fool holds positions in and recommends Apple, Bank of America, Berkshire Hathaway and Chevron. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
66% of Warren Buffett’s $301 Billion Portfolio by 2025 Is Invested in These 5 Unstoppable Stocks was originally published by The Motley Fool
