For almost 60 years Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett has been on a pedestal. During that time, he has grown his company into a trillion-dollar business, and has delivered a cumulative return on his company’s Class A shares (BRK.A) of over 5,600,000%!
One of the reasons the Oracle of Omaha is so widely followed on Wall Street — aside from his company’s outsized returns since the mid-1960s — is his willingness to share the characteristics he looks for when he raises capital van Berkshire wants to put to work. Buffett has regularly touted companies with sustainable moats, strong management teams and exceptional capital return programs.
But one of the unsung heroes of Buffett’s long-term success is portfolio concentration. Buffett and his former right-hand man Charlie Munger, who died in November, were long convinced that their top ideas deserved more investment capital.
Despite Berkshire Hathaway having stakes in 43 stocks and two index funds, a whopping 67% ($210.4 billion) of the $315 billion portfolio that Buffett manages at his firm is invested in just five unstoppable stocks.
Apple: $90.7 billion (28.8% of invested capital)
Even though there are more than 500 million shares of it Apple (NASDAQ: AAPL) have been sold by Buffett since early October 2023 – possibly for tax purposes – and this technology goliath is still by far the largest holding for Berkshire Hathaway.
While Apple is praised for its ultra-popular physical devices, including the iPhone, which commands a more than 50% share of the domestic smartphone market, it is the company’s Services segment that will have the most impact going forward. A subscription-based business model should steadily increase the company’s operating margin over time and help smooth out the revenue fluctuations that typically occur during iPhone replacement cycles.
The Oracle of Omaha is also a big fan of Apple’s market-leading stock buyback program. Since the beginning of 2013, Apple has repurchased $700.6 billion worth of common stock, which would be enough to buy all but nine of the other 499 shares. S&P500 components. These buybacks have reduced Apple’s outstanding shares by more than 42% and increased earnings per share.
American Express: $41.8 billion (13.3% of invested capital)
The second-largest holding in the $315 billion portfolio Warren Buffett oversees at Berkshire Hathaway is a credit services company American Express (NYSE:AXP). AmEx is the second longest continuous holding for Berkshire Hathaway (since 1991).
What has made American Express such a phenomenal stock for decades is its ability to double-dip. On the one hand, AmEx is the third-largest payment processor in terms of purchase volume across the credit card network in the US. This means that it generates highly predictable merchant processing fees. On the other hand, it is also a lender and can rake in annual fees and net interest income from its cardholders. During long periods of economic growth, AmEx’s ability to double the dip is undeniably beneficial.
Moreover, American Express has a knack for attracting affluent clientele. People with a high income are less likely to change their spending habits than the average-earning cardholder. In theory, this should help AmEx navigate the economic turbulence better than most lenders.
Bank of America: $31.9 billion (10.1% of invested assets)
Another top position that Warren Buffett has been selling regularly lately is Bank of America (NYSE: BAC). Between July 17 and October 2, the Oracle of Omaha green-lighted the sale of approximately 240 million shares of BofA stock, amounting to approximately $9.8 billion. Nevertheless, it is still Berkshire Hathaway’s third largest holding.
The great thing about bank stocks is their strong cyclical links. Although recessions are a normal and inevitable part of the economic cycle, they have historically been short-lived. Only three of the twelve U.S. recessions since the end of World War II have lasted twelve months, and none of the remaining three lasted longer than eighteen months. By comparison, most economic expansions last several years. These long periods of growth allow bank stocks like BofA to grow their loan portfolios cautiously.
Bank of America has also been able to take full advantage of the most aggressive rate hike cycle in four decades. The 525 basis point increase in the fed funds rate between March 2022 and July 2023 added billions of dollars in net interest income to Bank of America’s earnings each quarter.
Coca-Cola: $28.1 billion (8.9% of invested capital)
The fourth-largest position in Berkshire’s portfolio, and the true definition of an unstoppable stock, is the consumer staples juggernaut. Coca-cola (NYSE:KO). Coca-Cola, which has been a continuous holding of Berkshire since 1988, offers Buffett’s company a whopping 60% dividend yield, compared to its cost basis.
Coca-Cola’s continued success is a reflection of its geographically diverse operations. With the exception of North Korea, Cuba and Russia, it operates in every other country and has more than two dozen brands that generate annual sales of more than $1 billion. This geographic breadth allows Coca-Cola to generate predictable cash flow in developed markets while moving the organic growth needle in faster-growing emerging markets.
Coca-Cola’s marketing is also top notch. According to Kantar’s annual ‘Brand Footprint’ report, Coca-Cola has been the most chosen brand by consumers for twelve years in a row. By leaning on more than a century of history and connecting with younger audiences through digital media platforms, Coca-Cola has become one of the strongest and most easily recognizable brands in the world.
Chevron: $17.9 billion (5.7% of invested capital)
The fifth unstoppable stock that, along with Apple, American Express, Bank of America and Coca-Cola, cumulatively accounts for two-thirds of Berkshire Hathaway’s $315 billion in invested assets, is an integrated energy giant. Chevron (NYSE: CVX).
Warren Buffett did not invest nearly $18 billion in this global oil and gas giant on a whim. A bet of this magnitude signals an expectation that spot crude oil prices will remain high or perhaps move even higher.
Several years of reduced capital investment by major energy companies (including Chevron) during the COVID-19 pandemic, coupled with Russia’s invasion of Ukraine, strongly suggests that crude oil supply will remain tight for the foreseeable future. When supply of a high-demand energy commodity is limited, it is not unusual for the spot price to benefit.
Furthermore, the Oracle of Omaha likely appreciates the “integrated” aspect of Chevron’s business. While Chevron generates its juiciest margins from its upstream drilling segment, it also owns transmission pipelines and downstream chemical plants and refineries. These segments generate predictable cash flow and can act as a hedge in the event that the spot price of crude oil falls. In short, they play a key role in supporting Chevron’s meaningful capital return program.
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Bank of America and American Express are advertising partners of The Ascent, a Motley Fool company. 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 has a disclosure policy.
67% of Warren Buffett’s $315 Billion Portfolio Is Invested in These Five Unstoppable Stocks Originally published by The Motley Fool
