Warren Buffett’s Key Investments: A Closer Look at Berkshire Hathaway’s Heavyweights

Arguably no money manager garners more attention on Wall Street than Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett. During his nearly 60 years as CEO, he’s overseen an aggregate return in his company’s Class A shares (BRK.A) of more than 5,500,000%!

Lengthy books have been written detailing the Oracle of Omaha’s investing philosophy. Generally, Buffett is attracted to time-tested, profitable businesses, with strong management teams, well-defined competitive advantages, and established capital-return programs.

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

A significant element contributing to Berkshire Hathaway’s sustained success is Buffett’s strategy of concentrating investments. Although the company owns stakes in 43 stocks and two exchange-traded funds (ETFs), about 62% ($192.7 billion) of Berkshire’s $313 billion portfolio is concentrated in just four key holdings.

Apple: A Titan in The Portfolio

For years, tech giant Apple (NASDAQ: AAPL) has remained the largest holding in Warren Buffett’s portfolio at Berkshire. However, changes have occurred since October 2023. Specifically, Buffett and his team have sold over 515 million shares of Apple, reducing their stake to an even 400 million shares.

During Berkshire’s annual shareholder meeting in May, Buffett discussed potential increases in corporate tax rates, hinting at this as a reason for the reduction in Apple shares. He believes that locking in gains now may favor the company tax-wise in the future.

Despite the sell-off, Buffett values Apple highly. The company is known for its strong brand loyalty and effective management under CEO Tim Cook. Apple’s focus on expanding its subscription services is expected to yield higher margins over time, smoothing out revenue fluctuations.

Additionally, Apple boasts the largest capital-return program of any public company. Since starting its buyback program in 2013, Apple has repurchased $700.6 billion of its stock, reducing the number of outstanding shares by over 42%. This approach has significantly boosted its earnings per share (EPS).

Notably, Apple’s stock is currently trading at 35 times its trailing-12-month EPS, leading to concerns about its high valuation, particularly as sales of physical products like the iPhone have leveled off. Buffett’s traditional value-investing principles may have influenced him to reduce his stake.

American Express: Moving Up the Ranks

In recent months, financial services company American Express (NYSE: AXP) has risen to the No. 2 position in Berkshire Hathaway’s portfolio. AmEx shares have been held by Berkshire since 1991.

Berkshire’s confidence in financial stocks like AmEx stems from their cyclical nature. While recessions affect the economy and credit services negatively, they tend to be brief, with most economic expansions allowing cyclical stocks to thrive.

American Express’s dual role as both a payment processor and lender aids its performance. It ranks as the No. 3 payment processor by U.S. credit card volume, generating steady fees from merchants while also earning interest income from cardholders. Additionally, its focus on high-income earners helps it remain resilient during economic downturns.

Image source: Getty Images.

Bank of America: A Steady Player

Financial giant Bank of America (NYSE: BAC), previously Berkshire Hathaway’s No. 2 holding, has recently seen a decline in its position. Buffett and his team have sold approximately 266 million shares of BofA since mid-July, allowing AmEx to surpass it.

This selling trend may be linked to tax strategies, similar to discussions Buffett had regarding Apple. Notably, Buffett and his investment team have been net sellers for seven consecutive quarters, which could indicate concerns over high stock valuations.

Bank of America is positioned well in the long run due to longer economic expansions compared to contractions, allowing it to grow its loan portfolio wisely. The bank has also benefited from the Federal Reserve’s aggressive rate hikes, which have significantly boosted its net interest income.

Buffett likely appreciates Bank of America’s robust capital-return program. When the economy is strong, it’s common for BofA’s board to approve large capital-return plans, including buybacks and dividends.

Coca-Cola: The Classic Investment

The fourth major stock in Berkshire Hathaway’s impressive portfolio is beverage titan Coca-Cola (NYSE: KO), which plays a significant role alongside Apple, American Express, and Bank of America, collectively making up around 62% of the company’s invested assets.