For almost 60 years, Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett has been wowing Wall Street with his investing prowess. Since becoming CEO in 1965, the affably dubbed "Oracle of Omaha" has overseen a nearly 4,950,000% aggregate return in his company's Class A shares (BRK.A). This explains why roughly 40,000 investors eagerly flock to Berkshire's annual shareholder meeting each year.
Many books have been written about Buffett's "recipe" for success. Though you can read in more detail about his core investment philosophy, the Oracle of Omaha tends to focus on time-tested, brand-name companies that have solid management teams and offer well-defined competitive advantages.
At the moment, Berkshire's $386 billion investment portfolio comprises 44 stocks and two exchange-traded funds. But make no mistake about it: These nearly four-dozen securities aren't created equally.
Image source: Getty Images.
In Warren Buffett's most recent annual letter to shareholders, he laid out eight existing positions that he and his team intend to hold "indefinitely." It just so happens that one of these forever holdings quietly became Wall Street's latest company to conduct a stock split.
Warren Buffett's eight "forever" holdings
With few exceptions (e.g., Activision Blizzard in 2023), the Oracle of Omaha puts Berkshire Hathaway's capital to work with the mindset that he's investing in great businesses for years, if not decades. But for eight of the company's 44 stock holdings, there's simply no exit strategy.
It's probably no surprise that Coca-Cola(NYSE: KO) and American Express(NYSE: AXP) are two of the forever holdings Buffett touched on in his letter to shareholders -- the reason being that Coca-Cola and AmEx have been continuous holdings since 1988 and 1991, respectively. Thanks to Berkshire's exceptionally low cost bases in both companies, Buffett is overseeing annual yields on cost of 60% and 33%, respectively, for Coca-Cola and American Express.
The third company Buffett pointed out as an indefinite holding in his annual letter to shareholders is oil and gas company Occidental Petroleum(NYSE: OXY). Since the beginning of 2022, Berkshire's brightest minds have grabbed more than 255 million shares of Occidental common stock, which equates to a nearly 29% stake in the company. Berkshire also holds more than 83.8 million warrants for Occidental common stock that have an exercise price of $59.624 per share.
Though Occidental's debt-laden balance sheet isn't your typical Buffett investment, the company's drilling segment is ideally positioned to take advantage of tight global oil supply and expected fossil fuel demand growth throughout the decade.
Perhaps the biggest surprise is that the remaining forever holdings for Berkshire Hathaway are the five Japanese trading houses that Buffett and his top aides, Todd Combs and Ted Weschler, have invested in. I'm talking about Mitsubishi(OTC: MSBHF), Itochu(OTC: ITOCY) (OTC: ITOCF), Mitsui(OTC: MITSF)(OTC: MITSY), Marubeni(OTC: MARUY)(OTC: MARUF), and Sumitomo(OTC: SSUM.Y)(OTC: SSUM.F).
All five of these Japanese trading houses have their proverbial hands in multiple cookies jars at once. They regularly have oil and gas operations and manufacturing segments, and are typically involved in food production, among many others industries and sectors. In short, Mitsubishi, Itochu, Mitsui, Marubeni, and Sumitomo are vital to the long-term success of Japan's economy.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
Meet Wall Street's newest stock-split stock (and a Buffett forever holding)
Earlier this week, likely without 99.9% of investors noticing, one of these eight indefinite holdings in Berkshire's $386 billion portfolio became Wall Street's newest stock-split stock.
A stock split is an event that allows a publicly traded company to adjust its share price and outstanding share count without having any impact on its market cap or operating performance. These adjustments come in two forms: forward and reverse.
With a forward-stock split, a company is angling to lower its share price to make it more nominally affordable for everyday investors. Meanwhile, a reverse-stock split is designed to increase a company's share price, often with the goal of ensuring it meets the continued listing standards of a major stock exchange.
Historically speaking, companies that have enacted forward-stock splits since 1980 have handily outperformed the S&P 500 in the 12 months following their initial stock-split announcement (25.4% vs. 11.9%). This data point from Bank of America Global Research explains why investors tend to gravitate to companies enacting forward splits.
On May 1, the board of Japanese trading house Mitsui announced a 2-for-1 forward split with a record date of June 30. Since June 30 fell on a weekend, Monday, July 1, became the effective date for Mitsui's stock split. The purpose of this split, according to the Mitsui board, was to "allow for investing to become more accessible for our shareholders, as well as enable greater liquidity in our stock and further expansion of our investor base."
Additionally, Mitsui's announcement was accompanied by plans to repurchase up to 40 million shares of its common stock between May 2 and Sept. 20, totaling up to $1.3 billion. This equates to as much as 2.64% of the company's outstanding shares. For businesses with steady or growing net income, buybacks have a way of increasing earnings per share (EPS) and making great businesses appear that much more fundamentally attractive.
In addition to fantastic capital-return programs, Buffett really appreciates the modest compensation for executives at all five Japanese trading houses. Whereas CEO salaries can be eye-popping and jaw-dropping for select U.S. companies, the management teams at Mitsui, Mitsubishi, Itochu, Marubeni, and Sumitomo aren't breaking the bank or lining their pockets.
Best of all, Mitsui and its peers remain reasonably cheap, compared to a pricey U.S. market that's coerced Buffett to be a net-seller of equities for six consecutive quarters. While the S&P 500's Shiller price-to-earnings (P/E) ratio is at one of its highest readings in history during a bull market run, when back-tested to 1871, an industry-leading conglomerate like Mitsui has been valued at a sub-10 P/E ratio for almost the entirety of the trailing-three-year period.
Warren Buffett and his team love time-tested value stocks with hearty capital-return programs, and that's precisely what they're getting with Wall Street's newest stock-split stock and Buffett forever holding, Mitsui.
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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 Bank of America and Berkshire Hathaway. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
