On Friday, July 7, Berkshire Hathaway's (NYSE: BRK.A)(NYSE: BRK.B) Class A shares (BRK.A) hit a new all-time high. For CEO Warren Buffett, it represents just another day in the office.
Since the Oracle of Omaha became CEO more than 58 years ago, he's overseen an aggregate gain in his company's Class A shares of 4,215,087%, as of July 7th. Through the end of 2022, his company had doubled up on the annualized total returns (including dividends) of the benchmark S&P 500 -- 19.8% for Berkshire, vs. 9.9% for the S&P 500.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
Buffett's secret formula is truly no secret at all. He regularly spills the beans on what characteristics he looks for in an investment, such as trustworthy management teams and businesses with sustainable competitive advantages.
But the one factor that's led to Buffett's success that doesn't get nearly enough attention is his penchant for portfolio concentration. The Oracle of Omaha strongly believes that a higher percentage of invested assets should be put to work in his and his investment team's top ideas. As of last weekend, 90% ($333.6 billion) of the $372 billion portfolio Buffett oversees at Berkshire Hathaway was invested in only 14 stocks.
1. Apple: $174.6 billion (46.9% of invested assets)
Tech stock Apple(NASDAQ: AAPL) was described by the Oracle of Omaha as "a better business than any we own" during Berkshire Hathaway's 2023 annual shareholder meeting, so it's really no surprise that it makes up nearly 47% of invested assets.
Apple is one of the world's most-recognized brands and has a rock-solid management team that's overseeing its transition to a services-oriented company. It also doesn't hurt that Apple has repurchased $586 billion worth of its common stock over the past 10 years and has one of the world's largest nominal-dollar dividends. Buffett loves a company with a juicy capital-return program.
2. Bank of America: $29.5 billion (7.9% of invested assets)
Bank stocks are, arguably, Warren Buffett's favorite industry to invest in. Money-center giant Bank of America(NYSE: BAC) is his unquestioned favorite of the bunch.
Not only does Bank of America benefit from loan growth during disproportionately long periods of U.S. economic expansion, but it's the most interest-rate-sensitive of America's big banks. With the Fed undertaking its most aggressive rate-hiking cycle in four decades, it's lining BofA's coffers with added net interest income.
3. American Express: $25.7 billion (6.9% of invested assets)
Did I mention that Warren Buffett loves financial stocks? Credit-services provider American Express(NYSE: AXP)has been a continuous holding since 1993 and currently represents Berkshire's third-largest position by market value.
What makes American Express special is its ability to play both sides of a transaction. It's the No. 3 payment processor in the U.S. (i.e., collecting fees from merchants) and also lends to businesses and consumers, which allows it to earn interest and fees. With a keen focus on attracting affluent clientele, AmEx is better-positioned than most lenders to navigate a challenging economic environment.
4. Coca-Cola: $23.9 billion (6.4% of invested assets)
The Oracle of Omaha also loves wholesome brands, such as beverage stock Coca-Cola(NYSE: KO), which is the longest continuously held stock in Berkshire Hathaway's portfolio (since 1988).
Coca-Cola's geographic diversity is what keeps its needle pointing higher. It has operations in all but three countries (Cuba, North Korea, and Russia), and its product portfolio sports 26 global brands generating at least $1 billion in annual sales. Like Apple, it doesn't hurt that Coke is one of the most well-known brands in the world.
5. Chevron: $20.4 billion (5.5% of invested assets)
Despite Buffett and his team selling over 30 million shares of energy stockChevron(NYSE: CVX) during the first quarter, it still clocks in as Berkshire's fifth-largest holding, with a market value north of $20 billion.
By holding a $20.4 billion position in Chevron Buffett is signaling an expectation of higher oil prices to come. This belief is likely fueled by Russia's war with Ukraine, which may hamper Europe's energy needs, as well as more than three years of capital underinvestment by global energy majors during the COVID-19 pandemic. The tight supply of crude oil could lift global spot prices and boost margins for Chevron's highly profitable drilling segment.
Image source: Getty Images.
6. Occidental Petroleum: $13.1 billion (3.5% of invested assets)
Speaking of drilling, Warren Buffett and his investing lieutenants, Ted Weschler and Todd Combs, have purchased 224.1 million shares of oil stock Occidental Petroleum(NYSE: OXY) since the beginning of 2022.
The thesis with Occidental is the same as Chevron but with one big twist. While both companies are integrated operators with downstream and/or midstream segments, Occidental generates an outsized percentage of its revenue from drilling. This means an upswing in the price of crude would really pump up its operating cash flow.
7. Kraft Heinz: $11.5 billion (3.1% of invested assets)
Consumer staples stock Kraft Heinz(NASDAQ: KHC) checks in as Berkshire Hathaway's seventh-biggest holding by market value.
Although Kraft Heinz saw a nice rebound in its organic growth rate during the COVID-19 pandemic -- i.e., easy-to-prepare meals were popular choices when people were staying home -- it's Buffett's worst-performing stock on an unrealized basis. Kraft Heinz's balance sheet is bogged down by a significant amount of long-term debt and goodwill.
8. Moody's: $8.4 billion (2.3% of invested assets)
On the other hand, credit-ratings agency Moody's (NYSE: MCO) is one of Berkshire's top-performing current holdings, based on unrealized returns.
For more than a decade, historically low lending rates encouraged borrowing, which kept Moody's credit-rating division busy. But with rates now climbing and the U.S./global economic outlook uncertain, Moody's Analytics segment, which aids in risk assessment and corporate compliance, can shine.
9. Mitsubishi: $5.7 billion (1.5% of invested assets)
Despite Buffett's company being a decisive net seller of equities between October 2022 and April 2023, one area in which the Oracle of Omaha is finding value is Japan's trading companies, the largest of which is Mitsubishi(OTC: MSBHF).
The lure of Japan's trading houses is that they've become increasingly diversified over the years and are cheap. Buying into a well-known Japanese company like Mitsubishi gives Buffett's company exposure to energy, infrastructure, and real estate for a price-to-earnings ratio in the high single digits.
10. Itochu: $4.6 billion (1.2% of invested assets)
Itochu (OTC: ITOCY)(OTC: ITOCF) is the second of five Japanese trading houses into which Berkshire Hathaway has put money to work multiple times. The yen-to-dollar translation of this stake works out to a $4.6 billion market value, as of July 7, 2023.
Although Itochu is probably known best for its textile segment, it's a company that has an ever-growing profile of revenue channels. It offers an energy segment that trades in energy commodities, a food division that produces and distributes food products, and a financial services segment that provides venture-capital services, to name a few.
11. Mitsui: $4.6 billion (1.2% of invested assets)
The third Japanese trading house that makes an appearance among Warren Buffett's top-14 holdings is Mitsui(OTC: MITSY)(OTC: MITSF), which also happens to be the third-largest trading house by market cap behind Mitsubishi and Itochu.
The story here is the same as above. Mitsui trades at a microscopic 7x trailing-12-month earnings, generates predictable cash flow, and has a wide array of businesses that extend well beyond its original trading channels. Similar to its peers, the company deals in the trading of energy resources and food products and is involved in various finance and real estate ventures.
12. Activision Blizzard: $4.1 billion (1.1% of invested assets)
Gaming company Activision Blizzard(NASDAQ: ATVI) accounts for a little over 1% of Berkshire's invested assets, but isn't anything like the 11 holdings listed above.
Whereas Buffett and his team almost always buy stakes in businesses with the intent of holding for the long term, the Oracle of Omaha has clearly stated that his company's Activision position is a short-term arbitrage play. Microsoft made a $95 all-cash offer to acquire Activision Blizzard in January 2022. Earlier this week, a U.S. district court judge denied the Federal Trade Commission's injunction efforts to block the merger, which seemingly gives the OK for the deal to proceed.
13. HP: $3.8 billion (1% of invested assets)
Warren Buffett loves predictability and a good deal, which is exactly what personal-computing (PC) and printing-services provider HP(NYSE: HPQ) offers.
Although HP's growth days have long passed, PC sales and cash-flow generation tend to be predictable. Mature companies like HP typically have hearty capital-return programs, which, as noted, Buffett appreciates. HP is yielding almost 3.4% and has repurchased around $13 billion worth of its common stock over the trailing three years.
14. DaVita: $3.7 billion (1% of invested assets)
Last but not least, kidney dialysis services provider DaVita(NYSE: DVA) is the 14th company that collectively account for about 90% of the $372 billion investment portfolio Warren Buffett oversees for Berkshire Hathaway.
DaVita represents what I'd refer to as a numbers-game investment. The Centers for Disease Control and Prevention estimates that 35.5 million people (about 1 in 7 U.S. adults) have chronic kidney disease (CKD). The problem is that as many as 90% of these people are unaware they have CKD. DaVita finds itself servicing a trend that should continually grow as the U.S. population ages and medical screening technology improves.
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Bank of America and American Express are advertising partners of The Ascent, a Motley Fool company. Sean Williams has positions in Bank of America. The Motley Fool has positions in and recommends Activision Blizzard, Apple, Bank of America, Berkshire Hathaway, HP, Microsoft, and Moody's. The Motley Fool recommends Chevron and Kraft Heinz and recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy.
