Warren Buffett’s Investment Strategy Highlights Berkshire Hathaway’s Top Stocks

For six decades, Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett has consistently outperformed Wall Street’s benchmark, the S&P 500. Since the mid-1960s, the annualized return of Berkshire’s Class A shares (BRK.A) has nearly doubled the S&P 500’s total annualized return. As of the closing bell on April 22, Buffett has overseen a cumulative increase in BRK.A of over 6,310,000%.

Buffett’s impressive track record makes investors turn to him for stock investment guidance. While he does not provide specific stock recommendations, the trades made by Berkshire Hathaway convey his investment preferences.

Berkshire Hathaway’s Top Holdings: A Closer Look

Five major stocks make up nearly 64% of Berkshire Hathaway’s $268 billion in invested assets. These stakes indicate Buffett’s preferred companies, where he has invested substantial amounts of his company’s capital. A further examination reveals the largest investment he has made in a single company, totaling nearly $78 billion within just seven years.

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

As of April 22, Berkshire Hathaway’s five-largest holdings accounted for the following percentages of invested assets:

• 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)

While these well-known companies represent over $170 billion of Berkshire’s invested assets, Buffett’s actual investment costs are notably lower. For instance, both Coca-Cola and American Express are considered “indefinite” holdings by Buffett. Coca-Cola has been part of Berkshire’s portfolio since 1988, while American Express has been held since 1991, with a cost basis of approximately $1.3 billion for each.

Buffett’s large stake in Bank of America was primarily built through exercising warrants for 700 million shares at $7.14 per share in the summer of 2017, growing to over 1.03 billion shares. Estimates place approximately $17.5 billion as the investment in Bank of America.

The cost bases for Berkshire’s positions in Apple and Chevron are also lower than their current market values. Estimates suggest Buffett invested roughly $15.4 billion in Chevron and $11.9 billion in the 300 million Apple shares held.

In total, Buffett has allocated over $47 billion to these leading brands, yet this investment still falls short of the nearly $78 billion spent on his favorite stock since mid-2018.

Image source: Getty Images.

The Stock Buffett Truly Favors

Interestingly, the stock Buffett is keen on isn’t included in Berkshire Hathaway’s quarterly 13F filings. For details, one must check Berkshire’s quarterly operating results.

In each quarterly report, prior to executive certifications, there are monthly purchase data points for shares of Berkshire Hathaway itself, revealing Buffett’s true investment preference.

Before July 2018, Buffett and his late partner, Charlie Munger, found it difficult to authorize share buybacks. The previous rule required Berkshire’s stock to fall to or below 120% of book value, a threshold that often went unbreached.

On July 17, 2018, Berkshire’s board revised share repurchase rules, granting Buffett broader authority to buy back shares when there’s at least $30 billion in cash, cash equivalents, or U.S. Treasuries on hand, provided he perceives shares as undervalued. This flexible guideline allows Buffett to strategically deploy the company’s cash.

Since July 1, 2018, until June 30, 2024, Buffett has approved the buyback of Berkshire Hathaway shares for 24 consecutive quarters. In total, around $78 billion has been used for share repurchases, reducing the outstanding shares by approximately 12.5%.

Buffett’s rationale for these repurchases appears to pursue three main objectives. First, this strategy aligns with the long-term buy-and-hold philosophy that he and Munger have championed. By repurchasing stock, Berkshire increases the ownership stakes of existing shareholders.

Secondly, companies with stable or increasing net income, like Berkshire, should theoretically see their per-share metrics improve as the number of outstanding shares decreases.