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But even more surprising are the statistics we find when examining the company’s investments. Although Buffett and his team have acquired stakes in dozens of companies, they remain a surprisingly concentrated portfolio. Almost 80 percent of Berkshire’s fixed assets are invested in five stocks, which is staggering in light of the company’s management of nearly $ 230 billion, leaving the company with $ 188 billion in shares. five actions.
Apple: $ 115.4 billion
Since Buffett’s investment, Berkshire has accounted for almost half of its fixed assets and the position generated nearly $ 80 billion in unrealized foreign exchange gains even without dividends. Apple remains the world’s premium smartphone maker, selling its phones with the highest profit margins in the industry, achieving incredible brand equity, and building brand loyalty through its own solutions. The company’s growth has not stopped yet, it introduced its next-generation phones this week and 5G is a new growth opportunity for the company through increased sales. Although smartphone sales account for nearly half of the company’s revenue, they are not just the engine of growth. The company is seeing increased demand for its desktops this year as a result of the coronavirus epidemic, and the services business is also showing double-digit growth.
The investor also liked Apple’s capital allocation. While the current dividend yield of nearly 0.7 percent is not outstanding, if we look at cost pricing, Berkshire is yielding more than 2 percent annually. In addition to dividends, management is also specifically active in share buybacks, averaging $ 70 billion in 2018-2019.
Bank of America: $ 26.1 billion
Generally, Berkshire Hathaway acquires a maximum 10 percent stake in banks. This is because a stake greater than 10 percent would be considered a holding company by a regulation from the US Federal Reserve. Bypassing the US Federal Reserve, Buffett could acquire a 24.9 stake. percent in the Bank of America (BofA) with the approval of the Richmond Central Bank.
It’s no secret that Buffett especially likes bank stocks because they can show stable long-term results. The investor often buys cyclical companies that can take advantage of long periods of economic growth while remaining stable even in rare years of crisis. Bank of America, in Buffett’s view, meets these conditions as banks are sensitive to changes in the interest rate environment. If due to possible inflation the Fed raises interest rates later, this bank will be in the best position to take advantage of it.
Management is doing an excellent job, the bank has responded well to changes in consumer behavior. The company is well positioned in digital and mobile banking services, closing some of its branches and reducing costs.
Coca-Cola: $ 20.2 billion
The beverage giant has had the longest time in Berkshire’s portfolio and there are no plans to downsize or sell the position after 32 years.
His role is twofold for Buffett. On the one hand, it is a well-diversified giant that has serious positions not only in the soft drink market but also in the coffee and tea market, but also in the mineral water market. The company is geographically well diversified, has tremendous brand equity, and is hyped by many celebrities and community flu. Due to geographic and product diversification, there may be few surprises on the demand side, so the company has a stable base.
On the other hand, the company’s dividends are aristocratic and that brings Buffett a lot of money. Currently, the company pays a dividend of $ 1.64, offering investors an initial return of just nearly 3.2 percent. Buffett, on the other hand, bought the company’s stock at an average price of $ 3.25, essentially doubling the initial investment every year.
American Express: $ 16.1 billion
It has already been said that Buffett especially likes companies in the financial sector. The payment service provider has also been in the Berkshire portfolio for a long time.
As we’ve already noted at Bank of America, Buffett loves cyclical companies that take advantage of economic expansion. American Express (AmEx) is also based on this, as a card issuer, it processes commercial transactions in exchange for a commission and provides credit to individuals and companies, earning interest and commissions. The company is exposed to potential bad credit losses during a crisis or recession, but with proper risk management, the loss becomes predictable. So far, history has shown that periods of economic expansion are much longer than periods of recession.
Also, AmEx has built a very good customer base over the years. A company that is well positioned among its wealthy compared to its competitors can easily maneuver into a potential economic downturn because the wealthy are less likely to radically change their spending habits due to a weaker economic period. This enables the company to generate significant revenue from its business services even in difficult times.
Interestingly, in 1964 Buffett acquired a 40 percent stake in AmEx, which was Berkshire’s largest investment at the time. However, two years later he sold the shares of the company for a small profit and only returned in 1993, 27 years later.
Kraft Heinz: $ 10.2 billion
Among Berkshire Hathaway investments, we rank Kraft Heintz in fifth place, which is probably one of Buffett’s least popular investments in recent years. Berkshire owns nearly a quarter of the company’s outstanding shares.
The problem is that Bufett probably overpaid for the stake it bought in 2016. The company had a great deal of goodwill, that is, positive business value. Kraft Foods and HJ Heintz merged in 2015, making the combined company the fifth-largest food company in the world and the third-largest in the US In the merged company, sales did not go as planned. Therefore, in February 2019, goodwill amortizations were made for several key brands, totaling 15 billion, which were recorded as a one-time loss. The company was also forced to cut dividends in 2019, and while the coronavirus epidemic has helped sell packaged food, the company has yet to correct it. It currently has a market capitalization of nearly $ 40 billion, but the company still has $ 33.3 billion on its books as positive goodwill and $ 29 billion in debt. The company’s positions were not very good before the crisis and, as a result, management does not have much leeway in potential acquisitions or other capital allocation decisions.
To look on the bright side of things, the company pays $ 1.6 a year in dividends despite the dividend cut, generating a total of $ 521 million a year for Berkshire. The billionaire is likely to wait with the investment in the hope that, in addition to paying the dividend, the consumption of packaged food will continue to improve or Kraft Heinz will sell some of its assets to improve the situation.
(The Mad Motley)
Cover image: Getty Images
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