Warren Buffett’s Best Stocks of 2023
Warren Buffett’s shares presented in this article are wonderful and rewarding investment choices, given the ability of this pioneering investor to choose his investments with precision and study.
There is no doubt that Warren Buffett is one of the greatest investors who has ever lived. Since becoming CEO of Berkshire Hathaway in 1965, he has created over $700 billion in shareholder value and has averaged an annual return of more than 20% for the company’s stock. This constitutes a total return of over 3,800,000%, as of December 31, 2020.
With a track record like this, no one should be surprised to learn that Wall Street and investors are always eagerly awaiting quarterly deposits of what Buffett and his investment team have bought and sold.
After looking at Buffett’s buying and selling in the first quarter of 2022, one thing is clear: Oracle of Omaha doesn’t believe in diversification, in case you know what you’re doing. Just four shares of Berkshire Hathaway’s investment portfolio accounted for nearly 75 percent of its $349 billion in invested assets, as of the end of last week.
Here are Warren Buffett’s four stocks that make up 75 percent of his investment portfolio:
Apple accounted for 44.8% of Warren Buffett’s shares:
Warren Buffett often refers to innovation leader Apple (NASDAQ: AAPL) as “Berkshire’s third business.” And this statement makes even more sense when you realize that Berkshire’s stake in Apple is worth $134.5 billion and makes up just over 44% of his company’s investment portfolio. In 2020, Buffett purchased more than 907 million shares of Apple at a cost of $34.26 per share. With Apple stock reaching $172.39 a share last week, that means Buffett’s company is sitting on unrealized gains of $125.4 billion. With the world’s most traded Apple Inc. paying a dividend of $0.88 per year, Berkshire makes approximately $799 million in annual dividend income.
One of the reasons Apple is such a successful company is its brand. Every time a new product is launched, you will see real loyalty to the brand and you will see many lines of customers wrapping around its stores. According to a study by Visual Capitalist, Apple is the most valuable global brand, and no other company can even come close to it.
Apple also benefits greatly from the shift to 5G, in addition to its subscription services. Over the past nine months, Apple has recorded an increase in iPhone sales of well over $153.1 billion, which is a massive 38% improvement over iPhone sales in years past.
Services revenue also reached a record high of $50.1 billion during the last nine months of fiscal year 2021, which represents an annual increase of 28%. With service revenue providing much higher and more consistent margins than product sales, Apple’s already insane operating cash flow should expand even more in the coming years.
Apple provides its services to its shareholders. Its dividend has grown 132% since it was put back in 2012, and the company averages $15.7 billion in quarterly share buybacks over the past five years. So they make ideal Buffett stock in a variety of ways.
Bank of America accounted for 14.3% of invested assets:
Although Apple is by far Berkshire’s largest company, Buffett’s favorite place to put his company’s money to work is in bank stocks. And there is no bank stock he likes more than Bank of America (NYSE:BAC).
Berkshire Hathaway has more than 1 billion shares of BofA in its portfolio at an average cost of $14.17 per share. With that share price reaching $48.28 last week, Oracle of Omaha carries an unrealized gain of $35.2 billion.
With the Federal Reserve set to raise lending rates several times in 2022, Bank of America is in a position to benefit more than any other large bank. Bank of America’s digitization efforts are paying off, too. Over the past three years, the number of digital active users has grown by 5 million to 41 million.
All in all, the Oracle of Omaha loves periodic companies. Buffett is acutely aware that while recessions are inevitable, they usually don’t last more than two months or a few quarters. Periods of economic expansion, in contrast, usually last for years or perhaps even decades. Bank stocks such as Bank of America are ideally positioned to benefit from these long-term expansions.
Bank of America is also the most interest sensitive money center bank. In the company’s recent quarterly presentation, Bank of America BofA indicates that a parallel shift in the interest rate yield curve of 100 basis points would generate an estimated $8 billion in net interest income over the next 12 months. Since this income will be based on existing loans, it will actually go directly to his bottom line. When the Federal Reserve inevitably raises interest rates, the Bank of America will be the first beneficiary.
The BofA’s Enhanced Digital Engagement Trends shouldn’t be overlooked either. As more of its customers switched their banking transactions online or to mobile, Bank of America was able to consolidate some of its branches and cut its non-interest expenses. With a rich history of dividends and share repurchases, Bank of America should be a long-term investment for Berkshire Hathaway.
American Express accounted for 8.1% of invested assets:
Credit services giant American Express (NYSE: AXP) is the third longest-lived stock in Berkshire Hathaway’s investment portfolio and is also one of Warren Buffett’s best long-term stocks. AmEx was initially added in 1993.
With American Express stock reaching a price level of $185.85 last week, this means that Oracle of Omaha gained approximately 2100% or approximately $26.9 billion after it purchased its stake at an average cost of $8.49. In addition, Berkshire Hathaway is on track to collect approximately $261 million in dividends from AmEx this year.
The buying thesis behind American Express is very similar to that of bank stocks. The duration of economic expansions is much longer compared to the duration of deflation and recession. This means that a company like Amex, which benefits from more business transactions and increased spending activity, will thrive as the US and global economies expand.
Of course, American Express has another trick up its sleeve as it has always been knack for attracting wealthy clients. Well-to-do individuals are less likely to adjust their spending habits if there is a slight economic downturn. This means a lower likelihood of delinquency in credit accounts and a faster recovery from an economic slowdown for American Express than for many of its peers.
Coca-Cola accounted for 7% of Warren Buffett’s shares:
and finally beverage giant Coca-Cola (NYSE:KO). With approximately 46 securities currently owned by Berkshire Hathaway, Coca-Cola has been one of the longest-protected investments, going back more than 33 years, since 1988. The average cost at which Berkshire Hathaway bought its stake in Coca-Cola is $3.25. Warren Buffett’s company has a yield of more than 1,700% and about $23.1 billion in unrealized gains with the price now at $61.
Like Apple, Buffett likely appreciates Coca-Cola for its geographic reach and exceptional brand. Coca-Cola sells its products all over the world except for two countries (North Korea and Cuba), and has more than 20 beverage brands that bring in annual sales of at least $1 billion. Moreover, they control 20% of the cold drink market in developed markets, which provides a highly predictable cash flow. It also holds a 10% share of cold drinks sold in emerging markets where the company can realize higher growth potential going forward.
It is also one of the most recognized brands in the world. Coca-Cola has unleashed its multi-channel presence by utilizing social media and relying on well-known brand ambassadors to engage with multiple generations of consumers.
But what Buffett might like most about Coca-Cola is the insane profits his company receives annually. On the surface, Coca-Cola’s base annual payment of $1.68 doesn’t sound very impressive. But when you factor in that Berkshire’s cost basis is about $3.25 a share, Oracle of Omaha’s return on cost is close to 52%. In other words, Buffett doubles his initial investment in Coca-Cola every two years, thanks solely to the profits.
Warren Buffett stock portfolio
While Bank of America is first by number of shares, Apple ranks first by market capitalization, which stood at $157.53 billion at the end of 2021. Apple shares make up nearly half (47.6%) of Berkshire’s total stock portfolio. up 6% since the end of 2016.
In the fourth quarter of 2021, Berkshire Hathaway maintained its outsized position in Apple which it first bought in Q1 2016 and also held a smaller stake in Amazon.com (AMZN) which it bought in Q1 2019.
Berkshire Hathaway’s portfolio posted a solid annual gain of 20% between 1965 and 2020, double that of the S&P 500, earnings included.
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