1 Unstoppable Stock Set to Join Nvidia, Apple, Microsoft, Amazon, Alphabet and Meta in the $1 Trillion Club

Warren Buffet was born in 1930 and bought his first stocks at the age of 11. By 1965, he was running his own investment company called Berkshire Hathaway (BRK.A -0.17%) (BRK.B -0.30%)where he continues to cement his legacy as one of the world’s greatest investors.

Berkshire has become a conglomerate with several wholly owned companies under its umbrella, in addition to a portfolio of 47 publicly traded stocks and securities.

The largest holding in Berkshire is Applewhich became the world’s first $1 trillion company in 2018. Since then, Microsoft, Nvidia, Amazon, Alphabetand Meta platforms they also reached this milestone.

Berkshire may soon be the first US non-tech company to join them. Its stock has delivered an incredible compound annual return of 19.8% since 1965, taking the company to a valuation of $922 billion. Here’s why it could cross the $1 trillion mark next year.

Image source: The Motley Fool.

Buffett uses a simple investment strategy

Buffett is a value investor, meaning he likes to buy large companies at an attractive price with the intention of holding onto them for the long term. Robust profitability, reliable growth, strong management teams and shareholder-friendly programs such as share buybacks and dividend schemes are just some of the attributes they look for when deciding to invest.

Time is Buffett’s greatest ally as he relies on the magic of compounding to build his fortune for him. There is no better example than Berkshire’s investment in Coca cola. Berkshire spent $1.3 billion buying up shares of the beverage giant between 1988 and 1994 and still owns all of them today. That position is now worth $27.5 billion.

In addition to the huge capital gain, Berkshire received $736 million in dividend payments from Coca-Cola in 2023 and is set to earn even more this year!

Berkshire’s other long-term investments in American Express, Moody’s Corpand Apple (to name a few) are similar success stories.

Berkshire invests in high-quality businesses

Berkshire Hathaway was originally a textile company. It was on the brink of failure before Buffett bought it in 1965, but he quickly realized he couldn’t save his legacy business, so he turned it into a holding company for his various investments.

Over the years, Berkshire has acquired entire businesses such as Duracell, GEICO Insurance and Dairy Queen. In addition, the conglomerate’s portfolio of stocks and publicly traded securities is worth $302.4 billion. As mentioned above, Apple is the largest holding in that portfolio.

Berkshire has spent about $38 billion accumulating Apple stock since 2016, and despite selling more than half of its position this year, its remaining holdings are still worth more than 86 billion dollars.

Bank of America and American Express are Berkshire’s second and third largest holdings. It also holds sizeable positions in energy companies Chevron and Occidental Petroleumworth 17.8 billion dollars and 14.9 billion dollars respectively.

Some of Berkshire’s smaller positions include Visa ($2.1 billion), MasterCard ($1.8 billion) and even Amazon ($1.6 billion). Berkshire first bought Amazon shares in 2019, and Buffett expressed regret for not spotting the opportunity sooner. Even the world’s best investors make mistakes!

Berkshire’s financial growth is supporting its stock’s market gains

Berkshire’s stock rose 4,384,748% between 1965 and 2023, translating to a compounded annual return of 19.8%. This crushed the gain of 31,223% (10.2% compounded annually) in S&P 500 in the same period.

In dollar terms, an investment of just $1,000 in Berkshire stock in 1965 would have been worth $43.8 million by the end of 2023. The same investment in the S&P 500 would have grown to just $313,230. Berkshire continues to outperform the S&P 500, with a 19.1% gain this year, compared to just 12.7% for the index.

Berkshire generated revenue of $183.5 billion in the first half of 2024 (ended June 30), representing a 3.1% increase from the year-ago period. More than $76.3 billion came from sales and services from the conglomerate’s various business interests, and another $43.4 billion came from insurance premiums. Its energy and utilities businesses also contributed $35.7 billion.

Berkshire also reported a net profit of $43.3 billion in the first half of the year, so the conglomerate is also very profitable.

While Berkshire’s top-line growth has been fairly modest in 2024 so far, investors should focus on its long-term track record. The conglomerate generated $49.3 million in revenue in 1965, and according to Wall Street consensus estimates, that figure is on track to top $368.6 million. billion in 2024!

Berkshire could join the $1 trillion club within a year

Berkshire has a market cap of $922 billion as of this writing, so its stock only needs to gain 8.5% to push the conglomerate into the $1 trillion club. Given its 58-year track record of 19.8% annual growth — and its 19.1% growth in 2024 so far — it looks likely to happen next year. Mathematically, it could pass the milestone within the next six months.

That said, Berkshire now has a record $277 billion in cash, thanks in part to its recent sale of Apple stock. Cash typically offers a lower return than growth assets like stocks, so it could be a short-term headwind to reaching the $1 trillion club. Additionally, it positions Berkshire perfectly to pounce on new opportunities that could fuel its long-term growth.

What’s more, Berkshire is on track to earn record dividends from its top holdings this year, as Apple, Bank of America, American Express and Coca-Cola have each increased their payouts so far. In addition, the US Federal Reserve could cut interest rates as much as three times by the end of 2024, which will be a tailwind for Berkshire’s consumer, transportation and logistics businesses as they are sensitive to changes in economic growth .

Ultimately, Buffett authorized the repurchase of $2.9 billion of Berkshire stock in the first half of 2024 as a way to return cash to shareholders, a clear sign that he still believes the conglomerate is a good value. As my colleague Sean Williams points out, that takes Berkshire’s total buybacks to nearly $78 billion over the past six years alone, which is more than Buffett has used in any other stock.