79% of Buffett's portfolio is invested in just 6 stocks

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Buffett’s portfolio is big bets on trusted companies

Few investors have more followers than Berkshire Hathaway (ticker: BRK.A and BRK.B ) CEO Warren Buffett. That’s because he has far outperformed the S&P 500 since he became CEO in 1965. Berkshire’s A-shares (ticker: BRK.A) have a total return of 120 times better than the S&P 500 through the end of 2021.

Aside from Berkshire’s annual shareholder meeting, the company’s quarterly 13F filings are arguably the most anticipated event for shareholders and investing enthusiasts alike. 13F allows investors to see exactly what Buffett and his investment team bought, sold and held in the most recent quarter.

On February 14, 2023, Berkshire’s 13F filing showed investors exactly the stocks Buffett loved. But despite his total holdings of 49 securities, Buffett and his team have kept the firm’s portfolio highly concentrated in a handful of companies. A whopping 79% of Buffett’s $338 billion portfolio is invested in just six stocks.

Apple: 41.4% of investment assets

Although Buffett was a net seller of stocks in the fourth quarter of year 2022, sending a subtle but dire signal to investors, one of the stocks Buffett continues to add to his holdings is the technology stock Apple (ticker: AAPL), which accounts for $140 billion of Berkshire’s $338 billion stock portfolio.

Apple is considered Berkshire’s mainstay investment because of its brand power, incredible cash flow, and solid capital return plan.

Apple has a very loyal customer base and is currently the leading smartphone vendor in the US. In addition to attracting customers through physical products, Chief Executive Tim Cook has also overseen Apple’s steady transformation into a services company. While Apple hasn’t forgotten about the physical products that made it famous, growing into a services-oriented company will improve long-term profit margins and minimize revenue volatility during physical product replacement cycles.

What’s more, Apple has repurchased more than $550 billion worth of common stock over the past decade and pays out the largest annual dividend in nominal dollars (nearly $14.6 billion). Buffett likes public companies that reward patient shareholders.

Bank of America: 10.8% of invested assets

If there’s one industry Buffett likes to put his Berkshire money in, it tends to be banking. Bank of America (ticker: BAC) is Buffett’s favorite bank stock right now, as evidenced by its 10.8% weighting in Berkshire’s portfolio.

Buffett and his investment team are bullish on bank stocks because they are cyclical and can play a simple numbers game that favors long-term investors. You see, while recessions are inevitable, they are usually short-lived. By contrast, economic expansions can last for years. Over time, this enables banks to grow loans and deposits and generate higher income.

What makes Bank of America special is its sensitivity to interest rates. U.S. banks are benefiting from higher rates on their outstanding floating-rate loans as the Federal Reserve fights record-high inflation by raising interest rates. The result is a net interest income increase of $3.3 billion in the fourth quarter of 2022 compared to the same period in 2021. Remember, the U.S. central bank’s rate hike cycle isn’t over yet.

Chevron: 8.1% of invested assets

Over the past year, Buffett has become a big fan of the energy industry. That’s why you see energy stock Chevron (ticker: CVX) growing into the third-largest position in Berkshire’s stock portfolio.

The logic behind having a $27 billion position in Chevron is that energy commodity prices will remain elevated for the next few years. Many investors are concerned about Russia’s invasion of Ukraine and its impact on Europe’s energy supply needs. But more worrisome is what three years of reduced capital investment related to the COVID-19 pandemic has done to global energy supply chains. While warmer weather has depressed natural gas prices, supply constraints have kept crude prices well above their average in recent years.

Chevron has also done an excellent job of strengthening its balance sheet and rewarding shareholders. Last year, Chevron reduced its net debt from $25.7 billion to $5.4 billion. In addition, the company increased its annual dividend for the 36th consecutive year in January 2023, and its board of directors authorized share repurchases totaling up to $75 billion.

American Express: 8% of invested assets

This year marks the 30th consecutive year that American Express (ticker: AXP) has been a stock in Berkshire’s portfolio. Buffett and his investing lieutenants (Todd Combs and Ted Weschler) patiently made the position work, excluding dividends, which generated an unrealized gain of about $25.5 billion.

Similar to Bank of America, American Express benefits from a prolonged economic expansion. In addition to being a payment processor and collecting fees from merchants, Amex is also a lender. During boom times, it was able to earn interest income and annual fees from cardholders, and reap the fruits of its role as a payment processor from higher levels of consumer and business spending.

Another reason for Amex’s continued success is its ability to attract high-net-worth individuals. People with higher incomes are less likely to change their spending habits or not pay their bills when inflation rises or a moderate recession occurs. That helps make Amex relatively recession-proof.

Coca-Cola: 7.1% of invested assets

The only stock Berkshire has held longer than Amex is beverage giant Coca-Cola (ticker: KO). Berkshire has been a Coca-Cola shareholder since 1988 and currently benefits from a dividend yield of 56.7% relative to Berkshire’s cost base; Coke’s dividend alone more than doubles Buffett’s initial investment every two years .

Coca-Cola’s business is successful because of its geographic diversity and top-notch branding and marketing. The company has operations in every country in the world except North Korea, Cuba and Russia. This geographic diversity allows Coca-Cola to generate predictable operating cash flows in developed markets while building faster organic growth rates in emerging countries.

In terms of brands, Coca-Cola is arguably the most recognizable consumer goods brand on the planet. The company’s marketing campaigns have been incredibly successful at connecting with consumers for decades, and now it’s using social media to reach younger consumers.

Kraft Heinz: 3.9% of invested assets

Packaged foods, snacks, and condiments company Kraft Heinz (ticker: KHC ) is the sixth and final holding of six stocks in which more than 79% of Berkshire’s investment assets are concentrated.

While most companies have been hit in some way by the COVID-19 pandemic, Kraft Heinz is one of the few beneficiaries. Kraft Heinz’s easy-to-prepare meals and snacks are snapping off grocery store shelves as people are stuck at home. It also doesn’t hurt that the company owns a dozen well-known brands and can raise prices as needed to offset inflation.

But Kraft Heinz is one of Buffett’s worst investments. Kraft Heinz wrote down more than $15 billion in goodwill in February 2019 and is still weighing down a balance sheet heavy with long-term debt, goodwill, and intangible assets. the

Additionally, signs of consumer nervousness and substitution bias are building. In the fourth quarter of 2022, Kraft Heinz achieved organic revenue growth of 10.4%, the result of a 15.2% price increase. In other words, the volume mix fell by 4.8%. With such a large holding in Berkshire’s portfolio, this could be concerning.

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