When it comes to top-notch money managers on Wall Street, Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett is in a class of his own. Since taking over Berkshire six decades ago, the appropriately named "Oracle of Omaha" has led his company's Class A shares (BRK.A) to a cumulative return that topped 6,475,000%, as of the closing bell on March 27.
With Buffett consistently running circles around the benchmark S&P 500 in the return column, it's no surprise that investors wait eagerly for Berkshire's Form 13F filings to see which stocks he's been buying and selling.
But the biggest surprise investors are likely to find in Buffett's $290 billion portfolio is that it's highly concentrated.
Berkshire Hathaway CEO Warren Buffett, Image source: The Motley Fool.
Over 85% of Berkshire Hathaway's portfolio can be traced to one dozen top-tier companies
Both Buffett and late right-hand man Charlie Munger long believed in putting more capital to work in their best ideas. As of the late evening on March 27, more than 85% of the $290 billion in invested assets Buffett oversees at Berkshire Hathaway have been put to work in just 12 magnificent stocks:
Apple(NASDAQ: AAPL): $67.2 billion (23.1% of invested assets).
American Express(NYSE: AXP): $41.2 billion (14.2%).
If there's one aspect of Buffett's investment philosophy that he's unwavering about, it's his desire to get a good deal. He's first-and-foremost a value investor that's always on the hunt for price dislocations in any market environment.
Since the start of 2022, Buffett has been gobbling up shares of integrated oil and gas giant Occidental Petroleum at a furious pace (nearly 265 million shares). A tight global supply for oil following three years of reduced capital spending by energy majors during the COVID-19 pandemic pushed the spot price of crude oil higher. Unlike most integrated energy companies, Occidental is heavily reliant on its upstream drilling segment. Thus, a higher price for oil disproportionately benefits Occidental, relative to other integrated energy companies.
With the stock market trading at one of its highest valuation multiples when back-tested more than 150 years, Occidental Petroleum's forward price-to-earnings (P/E) ratio of 12 speaks to a value-focused Buffett.
Likewise, Buffett has been adding to Berkshire's stakes in Japan's five trading houses, which includes Mitsubishi, Itochu, and Mitsui from the list above. These businesses are integral to the success of Japan's economy, and they have their proverbial fingers in more industries than most investors can count. Most importantly, these "forever" holdings are valued at high-single-digit to low-double-digit P/E ratios, which makes them a phenomenal value in a pricey stock market.
Image source: Getty Images.
The Oracle of Omaha favors shareholder-friendly businesses
Another common theme for the Oracle of Omaha is that he gravitates to businesses that have a shareholder-first mentality. By this, I primarily mean companies that offer shareholder-friendly capital return programs.
For example, Apple has the largest share buyback program on the planet among publicly traded companies. Since introducing share repurchases in 2013, close to $750 billion worth of its stock has been bought back. During this timeline, Apple's outstanding share count has fallen by 43%, which has had a discernably positive impact on its earnings per share (EPS).
It's a somewhat similar story for Bank of America, which has been increasing its dividend following the financial crisis, and hasn't been shy about buying back its stock when the U.S. economy is firing on all cylinders. Bank of America has lowered its outstanding share count by nearly 30% since 2013, which for companies with steady or growing net income tends to increase their EPS.
Don't forget about beverage behemoth Coca-Cola, either. Coca-Cola's board has increased its base annual dividend for 63 consecutive years. Since Coca-Cola is Berkshire Hathaway's longest-held stock (since 1988), the annual yield relative to Berkshire's cost basis in the company is almost 63%! In other words, Buffett's company is more than doubling its initial investment in Coca-Cola from dividend payments alone in less than two years.
Sustainable moats/competitive advantages go a long way with Berkshire's chief
Lastly, the 12 magnificent stocks that comprise more than 85% of Berkshire Hathaway's $290 billion in invested assets almost always have sustainable moats and/or clearly defined competitive advantages.
The aforementioned Coca-Cola has virtually unparalleled geographic diversity on its side. With the exception of North Korea, Cuba, and Russia, it has ongoing operations in every other country. This means Coca-Cola's organic growth needle is moving higher in emerging markets, and it's generating predictable operating cash flow in developed countries.
Moreover, its marketing department has been hitting the right notes with consumers for decades. Whether Coca-Cola is relying on its more than 100 years of history to connect with mature audiences, or leaning into social media channels and artificial intelligence to engage younger consumers, few if any companies have done a better job of staying relevant across generational gaps.
American Express, which is Berkshire Hathaway's second longest-tenured holding (since 1991), offers competitive advantages, as well. American Express benefits from its ability to play both sides of the transaction aisle. In addition to collecting fees from merchants as one of America's most-trusted payment facilitators, it also lends via credit cards to businesses and consumers. Long periods of economic growth allow AmEx to double-dip.
Furthermore, American Express has done a phenomenal job of attracting high earners to its card network. The well-to-do are less likely to alter their spending habits or fail to pay their bills during minor economic disruptions. This should allow AmEx to weather downturns better than most lending institutions.
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Bank of America and American Express are advertising partners of Motley Fool Money. Sean Williams has positions in Bank of America. The Motley Fool has positions in and recommends Apple, Bank of America, Berkshire Hathaway, Chevron, and Moody's. The Motley Fool recommends Kraft Heinz and Occidental Petroleum. The Motley Fool has a disclosure policy.
