67% of Warren Buffett’s $315 billion portfolio is invested in these 5 unstoppable stocks

For almost 60 years, Berkshire Hathaway (BRK.A -0.29%) (BRK.B 0.07%) CEO Warren Buffett was on a pedestal. During this time, he has seen his company become a trillion dollar business as well as delivering a cumulative return on his company’s Class A shares (BRK.A) in excess of 5,600,000%!

One of the reasons the Oracle of Omaha is so widely followed on Wall Street — aside from his company’s huge profits since the mid-1960s — is his willingness to share the characteristics they look for when putting up Berkshire capital at work. Buffett regularly promoted businesses with sustained moats, strong management teams and exceptional capital return programs.

Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.

But one of the unsung heroes of Buffett’s long-term success has been portfolio focus. Buffett and longtime right-hand man Charlie Munger, who died in November, had long believed their top ideas deserved more investment capital.

Despite the fact that Berkshire Hathaway owns stakes in 43 stocks and two index funds, 67% ($210.4 billion) of the $315 billion portfolio that Buffett oversees at his company is invested in just five stocks. unstoppable

Apple: $90.7 billion (28.8% of invested assets)

Even though more than 500 million shares of Apple (AAPL 1.84%) have been sold by Buffett since early October 2023 — potentially for tax purposes — the tech behemoth is still Berkshire Hathaway’s largest holding by far.

While Apple is praised for its ultra-popular physical devices, including the iPhone, which holds more than 50 percent of the domestic smartphone market, it is the company’s Services segment that has the biggest impact going forward. A subscription service-based operating model should steadily increase the company’s operating margin over time, as well as help smooth out 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 bought back $700.6 billion worth of its common stock, which would be enough to buy all but nine of the other 499. S&P 500 components. These buybacks reduced Apple’s outstanding shares by more than 42% and boosted earnings per share.

American Express: $41.8 billion (13.3% of invested assets)

The second largest holding in the $315 billion portfolio that Warren Buffett oversees at Berkshire Hathaway is a credit services provider American Express (AXP -1.71%). AmEx is the second longest continuous holding company for Berkshire Hathaway (since 1991).

What has made American Express such a phenomenal stock for decades has been its ability to “double down.” On the one hand, AmEx is the third-largest payment processor by credit card network purchase volume in the US. This means it generates very predictable processing fees from merchants. On the other hand, it is also a lender and can bring in annual fees and net interest income from its cardholders. During long periods of economic growth, AmEx’s ability to double tilt is undeniably beneficial.

Additionally, American Express has a knack for attracting affluent clientele. High earners are less likely to change their spending habits than the average earning cardholder. In theory, this should help AmEx weather the economic turmoil better than most lenders.

Image source: Getty Images.

Bank of America: $31.9 billion (10.1% of invested assets)

Another top argument that Warren Buffett has been selling regularly lately is Bank of America (BAC -0.07%). Between July 17 and October 2, the Oracle of Omaha approved the sale of about 240 million BofA shares, equivalent to about $9.8 billion. However, it is still Berkshire Hathaway’s third largest holding.

The nice thing about bank stocks is their strong cyclical linkages. Even though recessions are a normal and inevitable part of the economic cycle, historically they are short-lived. Only three of the 12 US recessions since the end of World War II lasted 12 months, and none of the other three lasted longer than 18 months. By comparison, most economic expansions last several years. These long periods of growth allow bank stocks like BofA to prudently grow their loan portfolios.

Bank of America also managed to take full advantage of the most aggressive rate hike cycle in four decades. The 525 basis point increase in the federal funds rate between March 2022 and July 2023 added billions of dollars in net interest income to Bank of America’s bottom line each quarter

Coca-Cola: $28.1 billion (8.9% of invested assets)

The fourth-largest holding in Berkshire’s portfolio, and the very definition of unstoppable stock, is the consumer staples juggernaut. Coca cola (K.O 0.25%). Coca-Cola, which has been a continuous holding company for Berkshire since 1988, offers Buffett’s company a whopping 60% dividend yield on a 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 more than $1 billion in annual sales. This level of geographic breadth allows Coca-Cola to generate predictable cash flows 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 brand of choice for consumers for 12 consecutive years. Being able to build on more than a century of history, as well as connect with a younger audience through digital media platforms, has made Coca-Cola one of the most powerful and recognizable brands in the world.

Chevron: $17.9 billion (5.7% of invested assets)

The unstoppable fifth stock, which, along with Apple, American Express, Bank of America and Coca-Cola, collectively accounts for two-thirds of Berkshire Hathaway’s $315 billion in invested assets, is the integrated energy giant. Chevron (CVX -1.57%).

Warren Buffett doesn’t have nearly $18 billion invested in this global oil and gas giant on a whim. Such a big bet is the expectation that the spot price of crude oil will remain high or maybe even higher.

Years of reduced capital investment by major energy companies (including Chevron) during the COVID-19 pandemic, along with Russia’s invasion of Ukraine, strongly suggest that crude oil supply will remain tight for the foreseeable future. When the supply of an on-demand energy product is tight, it is not uncommon for its spot price to benefit.

Additionally, the Oracle of Omaha likely appreciates the “integrated” aspect of Chevron’s operations. While it generates its juiciest margins from its upstream drilling segment, Chevron also owns transportation pipelines and downstream chemical plants and refineries. These segments generate predictable cash flow and can act as a hedge if the spot price of crude oil falls. In short, they play a key role in supporting Chevron’s significant return on capital program.