For six decades, Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett has demonstrated a knack for handily outperforming Wall Street's benchmark index, the S&P 500. The annualized return of Berkshire's Class A shares (BRK.A) has practically doubled up the total annualized return of the S&P 500 since the mid-1960s, with the Oracle of Omaha overseeing a cumulative increase in BRK.A that tops 6,310,000%, as of the closing bell on April 22.
Given Buffett's steady outperformance, investors often look to Berkshire's chief for guidance as to which stocks to buy. Although Buffett doesn't offer stock-specific recommendations, Berkshire's trades do the talking.
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Five brand-name stocks account for nearly 64% of Berkshire Hathaway's $268 billion of invested assets. One might surmise these are the Oracle of Omaha's favorite businesses, and that he's spent a small fortune of his own company's cash to acquire stakes in these stocks. But dig a bit deeper and you'll uncover the true apple of Warren Buffett's eye -- a company he's spent nearly $78 billion purchasing in less than seven years.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
Berkshire Hathaway's five-largest holdings account for almost 64% of invested assets
When the closing bell tolled on April 22, Berkshire's five largest holdings, as a percentage of invested assets, were:
Apple(NASDAQ: AAPL): $59.9 billion (22.4% of invested assets)
American Express(NYSE: AXP): $38.3 billion (14.3% of invested assets)
Coca-Cola(NYSE: KO): $29.6 billion (11% of invested assets)
Bank of America(NYSE: BAC): $26.1 billion (9.7% of invested assets)
Chevron(NYSE: CVX): $16.3 billion (6.1% of invested assets)
Though these five-brand name companies collectively amount to more than $170 billion of invested assets, Warren Buffett spent far less than that building up his stakes in these businesses.
For example, Coca-Cola and American Express are two of what Buffett considers to be "indefinite" holdings for Berkshire Hathaway. Coca-Cola has been held continuously since 1988, while American Express has been a steady holding since 1991. Based on cost bases published in Buffett's 2021 annual letter to shareholders, approximately $1.3 billion was spent on each of Coca-Cola and American Express.
The bulk of Berkshire's Bank of America stake was built up by exercising warrants for 700 million shares at a price of $7.14 per share in the summer of 2017. Eventually, Buffett oversaw his company's BofA stake grow to north of 1.03 billion shares. On an estimated basis, using average cost basis data from Form 13F-aggregating site WhaleWisdom.com, roughly $17.5 billion of Berkshire's cash went into the current Bank of America position.
Berkshire's respective cost bases for tech giant Apple and integrated energy company Chevron are also lower than the current market value for both holdings in its portfolio. Estimates from WhaleWisdom.com imply that Buffett spent roughly $15.4 billion on the 118.6 million shares of Chevron currently held, and in the neighborhood of $11.9 billion for the remaining 300 million shares of Apple.
Altogether, the Oracle of Omaha has put more than $47 billion of his company's cash to work in these brand-name businesses. But this is still $30 billion less than he's invested in his favorite stock since the midpoint of 2018.
Image source: Getty Images.
This is the true apple of Buffett's eye
The interesting quirk about what I'm calling Warren Buffett's favorite stock to buy is that you won't find it listed in Berkshire Hathaway's quarterly 13F filings. Rather, investors will need to dig into Berkshire's quarterly operating results for detailed information.
In every quarterly report, just prior to the executive certifications, you'll find to-the-dollar monthly purchase data of the true apple of Buffett's eye: shares of his own company.
Prior to July 2018, repurchasing shares of Berkshire Hathaway stock proved impossible for Warren Buffett and his now-deceased right-hand man, Charlie Munger. In order to authorize buybacks before July 2018, Berkshire's stock needed to fall to or below 120% of book value, which was a line-in-the-sand valuation figure that was never breached.
On July 17, 2018, Berkshire's board amended the share repurchase rules to give its CEO more liberty to reward investors via buybacks. The new criteria allow Buffett to repurchase as many shares as he likes, with no ceiling or end date, as long as Berkshire has at least $30 billion in combined cash, cash equivalents, and U.S. Treasuries on its balance sheet, and he believes shares are intrinsically cheap. This latter qualifier is intentionally vague and allows Buffett to put his company's cash to work as he sees fit.
For 24 consecutive quarters (July 1, 2018 – June 30, 2024), Buffett green-lit the purchase of his own company's stock. Collectively, almost $78 billion was spent buying back Berkshire Hathaway shares, which reduced the company's outstanding share count by close to 12.5%.
The Oracle of Omaha's purpose in buying back his own company's stock is likely threefold. First, it incents the long-term buy-and-hold ethos that Buffett and Munger held dear for decades. Repurchasing stock is incrementally increasing the ownership stakes of existing shareholders.
Secondly, companies with steady or growing net income (like Berkshire) should see their earnings per share (EPS) increase over time because of buybacks. Boosting EPS can make Berkshire more fundamentally attractive to value-seeking, long-term investors.
Lastly, nearly $78 billion worth of buybacks in less than seven years signals Buffett's utmost confidence in the company he built with Munger over many decades.
The one caveat to Warren Buffett's aggressive buying of his own stock is that he's, first and foremost, a value investor. Recently, Berkshire stock has been trading at its highest price-to-book multiple since 2008. Perhaps unsurprisingly, Berkshire's chief broke his 24-quarter streak and didn't purchase shares of his favorite stock during the latter-half of 2024.
While Berkshire Hathaway stock remains the true apple of Buffett's eye, he's likely to wait for a discernable price dislocation before gobbling up additional shares via buybacks.
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American Express is an advertising partner of Motley Fool Money. Bank of America is an advertising partner 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, and Chevron. The Motley Fool has a disclosure policy.
