Berkshire Hathaway (BRK.A) (BRK.B) CEO Warren Buffett has been nothing short of a money machine since taking the reins in 1965. As of the closing bell on Aug. 14, 2023, he’s overseen a nearly 4,400,000% aggregate gain in the company’s Class A shares (BRK.A). Further, through the end of 2022, Buffett and his investment team had doubled up the average annualized total return, including dividends paid, of the benchmark S&P 500 since he took over — 19.8% vs. 9.9%.

The Oracle of Omaha’s long-term outperformance is why so many investors attempt to ride his coattails and mirror his trades. Due to required quarterly 13F filings with the Securities and Exchange Commission (SEC), it’s relatively easy to match Buffett’s actions stride for stride.

Berkshire Hathaway’s latest 13F, which was released after the closing bell this past Monday, Aug. 14, showed that he and his team opened new positions in a trio of homebuilders, as well as pared down their stakes in a couple of key holdings.

More importantly, it re-emphasized Warren Buffett’s love of portfolio concentration. Buffett and his right-hand man, Executive Vice Chairman Charlie Munger, have long believed that diversification is only necessary if you don’t know what you’re doing.

Despite overseeing a mammoth $360 billion investment portfolio, the Oracle of Omaha and his team have 78% of invested assets ($280.6 billion) tied up in only six stocks.

1. Apple: $164.3 billion (45.6% of invested assets)
The easiest way to tell that Warren Buffett has thrown the idea of diversification completely out the window is by taking a closer look at Berkshire Hathaway’s top holding, tech stock Apple (AAPL). As of the closing bell on Aug. 14, it comprised close to 46% of invested assets.

It really shouldn’t come as a surprise that Apple is Berkshire’s largest holding given what Warren Buffett had to say about the company during Berkshire Hathaway’s annual shareholder meeting. He referred to Apple as “a better business than any we own,” which is a strong statement given that Berkshire also owns top-notch insurance company GEICO and railroad BNSF.

For well over a decade, physical product innovation is what’s made Apple tick. The release of the iPhone in 2007 and the advent of the iPad tablet in 2010 have been significant milestones for the company that helped solidify its smartphone and tablet market share, as well as garnered the company a loyal following of consumers.

Looking ahead, Apple’s future rests with its subscription-services segment. Services offer juicier operating margins and should help the company better navigate the revenue ebbs and flows often observed during iPhone replacement cycles.

Lastly, don’t overlook Apple’s market-leading capital-return program. The company has repurchased around $600 billion worth of its common stock since the start of 2013.

2. Bank of America: $31.9 billion (8.9% of invested assets)
Although Apple makes up an outsized portion of Warren Buffett’s portfolio at Berkshire Hathaway, the Oracle of Omaha feels most at home putting money to work in the financial sector. That’s why nearly $32 billion is currently invested in Bank of America (BAC), which is more commonly known as “BofA.”

Warren Buffett is a big believer in not betting against America. He also realizes that economic downturns are inevitable. Rather than trying to foolishly guess when recessions will occur, he buys time-tested, well-capitalized financial stocks that can take advantage of disproportionately long periods of expansion. Bank of America fits the bill.

Among large U.S. banks, none was arguably better positioned to take advantage of the most-aggressive Fed rate-hiking cycle in decades. A cumulative 525-basis-point jump in the federal funds rate and subsequent increase in interest rates on variable-rate loans is helping BofA collect billions of dollars in added net interest income each quarter.

Bank of America is inexpensive, too. Despite macro factors working in the company’s favor, investors can buy shares of BofA right now for less than its book value and roughly 9x consensus earnings in 2023. Warren Buffett loves a good deal.

3. American Express: $25.2 billion (7% of invested assets)
Credit-services provider American Express (AXP) is Berkshire Hathaway’s third-largest holding by market value and a continuation of Buffett’s love of financial stocks.

AmEx, as American Express is better known, has been a continuous holding of Berkshire’s for the past 30 years. The fact that AmEx can play on both sides of the aisle is what really entices Warren Buffett.

Based on SEC filings from 2021, American Express was the clear No. 3 in credit card network purchase volume in the United States. No. 3 in the pecking order is still an envious and profitable position to be in when you’re talking about the largest market for consumption globally. However, American Express is also a lender, which means it’s collecting fees and interest from cardholders — along with fees from merchants — during transactions.

Furthermore, AmEx has long had a knack for attracting wealthy cardholders. High-earning workers are less likely to alter their spending habits during mild recessions than the average consumer, which leads to added operating stability for American Express.

4. Coca-Cola: $24.4 billion (6.8% of invested assets)
If you haven’t noticed by now, Warren Buffett prefers putting Berkshire Hathaway’s capital to work in brand-name companies. Beverage stock Coca-Cola (KO), which accounts for 6.8% of invested assets, is the longest-held stock in Berkshire’s portfolio (since 1988).

Coca-Cola has its brand, cash-flow predictability, and top-tier marketing working in its favor. Among consumer goods companies, it’s easily the most well-known brand worldwide.

More importantly, Coca-Cola has operations in all but three countries globally (North Korea, Cuba, and Russia). This allows it to generate predictable operating cash flow in developed markets while also taking advantage of an estimated 8% to 10% compound annual growth rate in emerging markets through 2026. Globally, Coke has 26 brands generating at least $1 billion in annual sales.

The company hasn’t been afraid to spend in the digital arena to boost engagement, either. More than half of its marketing budget is digital, with Coke leaning on artificial intelligence to create and tailor content for consumers. However, Coca-Cola has a rich history, well-known ambassadors, and holiday tie-ins that help it to also continually connect with a more mature audience.

The icing on the cake is that Coca-Cola has increased its base annual dividend for 61 consecutive years.

5. Chevron: $20.2 billion (5.6% of invested assets)
Earlier this year, energy stock Chevron (CVX) was challenging BofA for the No. 2 spot in Warren Buffett’s portfolio. But following two quarters of being pared down, this integrated oil and gas giant is now Berkshire’s fifth-biggest holding by market value.

To be clear, having more than $20 billion invested in Chevron isn’t a dart throw. It looks like a calculated bet that the spot price for crude oil will remain above historic norms.

This thesis is supported by the ongoing war in Ukraine against Russia, as well as energy majors reducing their capital expenditures for years during the COVID-19 pandemic. A market where oil supply remains tight is typically a positive for spot prices.

But among oil stocks, Chevron tends to be one of the safest. It’s an integrated operator, which means that, in addition to drilling oil and natural gas, it also operates transmission pipelines, refineries, and chemical plants. These midstream and downstream assets provide predictable cash flow or serve as a hedge to a decline in the spot price of crude oil and natural gas.

Energy stocks usually have meaningful capital-return programs, too. Earlier this year, Chevron’s board OK’d up to $75 billion in share buybacks and raised the company’s base annual dividend for a 36th consecutive year.

6. Occidental Petroleum: $14.6 billion (4.1% of invested assets)
The sixth-largest holding in Berkshire Hathaway’s portfolio is oil stock Occidental Petroleum (OXY). Unlike Chevron, which Buffett and his team have been paring down, Occidental has been a popular buy since the start of 2022.

Buffett’s buy thesis for Occidental Petroleum is similar to Chevron’s but comes with a couple of pretty big twists. For example, even though Occidental is an integrated operator, it generates a disproportionate amount of revenue from drilling. Compared to Chevron, its pendulum of outcomes is far more reliant on the spot price of crude oil.

Occidental’s balance sheet isn’t nearly as rock solid as Chevron’s, either. Despite reducing its net long-term debt by more than $15 billion over the course of two years, Occidental still closed out June with $19.7 billion in net long-term debt. In short, it needs a favorable spot price for West Texas Intermediate crude to improve its balance sheet.

Lastly, Berkshire Hathaway holds warrants to purchase up to 83,858,848 shares of Occidental, with an exercise price of 59.624 per share. Buffett may continue buying shares of Occidental to help keep its share price well above this exercise price.

— Sean Williams

Where to Invest $99 [sponsor]
Motley Fool Stock Advisor's average stock pick is up over 350%*, beating the market by an incredible 4-1 margin. Here’s what you get if you join up with us today: Two new stock recommendations each month. A short list of Best Buys Now. Stocks we feel present the most timely buying opportunity, so you know what to focus on today. There's so much more, including a membership-fee-back guarantee. New members can join today for only $99/year.

Source: The Motley Fool