For the better part of six decades, Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett has been putting on a masterclass in investing for Wall Street. Since ascending to the role as CEO in the mid-1960s, he’s overseen a cumulative return in his company’s Class A shares (BRK.A) of 5,561,176%, as of the closing bell on Dec. 12, and nearly doubled up the average annual total return, including dividends, of the benchmark S&P 500.
Vastly outperforming Wall Street’s most-followed stock index has earned the Oracle of Omaha quite the following. It’s why investors eagerly await Berkshire’s Form 13F filings each quarter so they can see which stocks Buffett has been buying and selling.
While Berkshire’s chief has historically invested in businesses with sustainable moats and strong management teams, perhaps the most-defining characteristic of Buffett’s investing philosophy is his penchant for concentration. He believes his best ideas are worthy of an outsized investment.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
As we ready to turn the page to a new year, Warren Buffett appears poised to enter 2025 with 66% ($199.1 billion) of the $301 billion portfolio he oversees at Berkshire Hathaway invested in the following five unstoppable stocks.
Though tech goliath Apple(NASDAQ: AAPL) remains the largest holding at Berkshire by a considerable amount, it’s worth noting that Buffett has overseen the sale of more than 615 million shares of Apple stock, in aggregate, over the previous four quarters, ended Sept. 30.
During Berkshire Hathaway’s annual shareholder meeting in May, Buffett opined that tax purposes were behind the recent selling activity. He intimated that the corporate income tax rate was likely to climb, which would make locking in sizable unrealized gains at a favorably low corporate income tax rate a smart move.
In hindsight, this hasn’t worked at as planned. With Donald Trump winning in November, the corporate income tax is likely to remain at its lowest level since 1939, or perhaps head even lower.
Despite paring down two-thirds of Berkshire’s stake in Apple, Warren Buffett continues to appreciate consumers’ love for the Apple brand, as well as Tim Cook’s top-notch leadership. Cook is overseeing an ongoing transformation that has his company focused on higher-margin subscription services.
Additionally, Buffett is a huge fan of hearty capital-return programs. On top of Apple dishing out $1 per share in dividends each year — Berkshire is on track to collect $300 million in dividend income from its Apple stake in 2025 — it has the largest share repurchase program on the planet. It’s bought back $700.6 billion worth of its common stock since the start of 2013.
The second-largest holding by market value in Berkshire’s portfolio happens to be the second longest-tenured stock: credit-services provider American Express(NYSE: AXP). “AmEx,” as the company is more commonly known, has been a continuous holding since 1991.
There’s no sector Warren Buffett loves putting his company’s cash to work in more than financials. The simple reason for this is because financial stocks are cyclical. Buffett astutely recognizes that while economic downturns are normal and inevitable, they don’t last very long. Companies like American Express are able to take advantage of disproportionately longer period of growth.
AmEx’s secret sauce is its ability to benefit from both sides of the transaction counter. It’s the No. 3 payment processor by credit card network purchase volume in the U.S., which means it’s collecting fees when processing payments for merchants. But it’s also a lender, which allows it to generate annual fees and/or interest income from its cardholders. Lengthy periods of growth benefit both aspects of its operations.
Furthermore, AmEx has traditionally attracted high earners. Well-to-do cardholders are less likely than average-earning consumers to alter their buying habits during minor economic disruptions, or fail to pay their bill.
Finally, thanks to a cost basis of roughly $8.49 per share in AmEx, Berkshire Hathaway is netting a 33% dividend yield relative to its cost.
The Oracle of Omaha’s third-largest holding, Bank of America(NYSE: BAC), is another stock he’s been selling with increased frequency of late. Based on Form 4 filings, Buffett has disposed of more than 266 million shares of BofA stock since July 17.
The reason for this selling activity might be similar to Apple. Berkshire Hathaway is sitting on sizable unrealized gains from its Bank of America stake, and Buffett may be looking to lock in those gains at a favorably low tax rate.
Then again, it’s possible we’re witnessing Warren Buffett’s displeasure with stock valuations for the broader market continue to play out. Buffett has overseen more stock sales than purchases for eight consecutive quarters, which is a pretty strong indication that he and his top advisors are struggling to find value in a historically pricey stock market. Although BofA isn’t particularly pricey, it’s no longer the screaming bargain, relative to book value, it once was.
On the bright side, Bank of America is the most interest-sensitive of America’s largest banks by total assets and has benefited immensely from the steepest rate-hiking cycle by the Fed since the early 1980s. Even with the nation’s central bank recently kicking off a rate-easing cycle, this slow-stepped process should allow BofA to continue reaping the rewards of higher interest rates.
Keeping with the theme, BofA also offers a healthy capital-return program. Berkshire is on track to collect almost $797 million in dividend income from Bank of America in 2025. Further, BofA’s board isn’t shy about approving share buybacks when the U.S. economy is expanding.
Image source: Coca-Cola.
Consumer goods colossus Coca-Cola(NYSE: KO) should enter the new year as Berkshire Hathaway’s fourth-largest holding by market cap. It’s also the longest-tenured stock — held since 1988 — in the $301 billion portfolio overseen by Warren Buffett.
Buffett is a fan of keeping things simple and not overthinking his investments. Coca-Cola has an exceptionally strong and well-recognized brand, and it sells a basic necessity (beverages) that’s going to be purchased no matter how well or poorly the U.S. or global economy are performing. This leads to highly predictable and transparent operating cash flow year after year.
Something else that improves the predictability of Coca-Cola’s operating results is its virtually unmatched geographic diversity. Save for North Korea, Cuba, and Russia, Coca-Cola has ongoing operations in every other country. This means steady cash flow in developed markets, as well as the ability to move the organic growth needle in emerging markets. According to Kantar’s annual “Brand Footprint” report, Coke’s products have been the most-chosen off retail shelves for 12 straight years.
Credit is also due for Coca-Cola’s marketing team, which has done a masterful job of crossing generational gaps to engage with consumers. The company is relying on digital channels and artificial intelligence (AI) to reach its younger audience, while leaning on well-known brand ambassadors and its former holiday tie-ins to connect with its mature consumers.
Would you be surprised if I also mentioned that Coca-Cola has a shareholder-friendly capital-return program? The company has increased its payout for 62 consecutive years. Based on Berkshire’s cost basis in Coca-Cola of just below $3.25 per share, Buffett’s company is netting a 60% annual yield on cost.
Warren Buffett’s No. 5 holding, which when combined with Apple, American Express, Bank of America, and Coca-Cola, will account for 66% of Berkshire Hathaway’s more than $300 billion portfolio in 2025 is none other than energy giant Chevron(NYSE: CVX).
Having more than $18 billion riding on Chevron, along with another $12.3 billion in Occidental Petroleum, is a pretty clear indication that Berkshire’s chief expects the spot price of oil to remain elevated or head higher — and there are certain macro factors that favor this sentiment.
For instance, Russia’s invasion of Ukraine in February 2022 calls into question the energy supply needs of Europe. Additionally, three years of reduced capital investment by energy majors during the COVID-19 pandemic will likely make it difficult to increase global crude oil supply anytime soon. When the supply of an in-demand commodity is constrained, it tends to push the price of that commodity higher.
However, Chevron is an integrated energy company, as well. Though it generates its best margins from drilling, it also operates transmission pipelines, along with downstream chemical plants and refineries. These ancillary segments serve as a hedge in the event that the spot price of crude oil declines.
Like Buffett’s other top holdings, Chevron has a bountiful capital-return program. Its board has approved dividend increases for 37 consecutive years, and has a $75 billion share repurchase program in place.
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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, and Chevron. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
