Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) owns more than $200 billion worth of common stock in one of the most closely watched portfolios in the entire world. And, there's a good reason so many investors keep track of Berkshire's stock holdings -- it's the investing vehicle of master investor Warren Buffett, the Oracle of Omaha.
The common stocks of more than 40 companies are in Berkshire's portfolio, but there are major size differences among the positions. Some are worth well in excess of $10 billion, while others are relatively small at a few hundred million.
With that in mind, here are the 10 largest stock positions in Berkshire Hathaway's portfolio, and why Warren Buffett and his team like each one.
Apple has quickly evolved to be Berkshire's top holding, and by a wide margin. The position started in 2016 when one of Buffett's investment managers decided to invest about $1 billion in the tech giant, and Buffett has built up quite a large position in the few years since. Buffett loves the "stickiness" of Apple's ecosystem and has said that the company's products provide tremendous value to customers.
2. Bank of America
Berkshire's massive Bank of America stake originated in the wake of the financial crisis. Buffett made a particularly savvy investment in $5 billion worth of Bank of America preferred stock, but for no extra cost, also received warrants to buy 700 million shares for just $7.14 each. Well, the warrants were exercised after the bank's 2017 dividend increase, and since Bank of America trades for roughly $30 per share currently, it's fair to say that this was an extremely successful investment.
3. Wells Fargo
Despite the scandal-plagued nature of the past few years, Warren Buffett has stood by Wells Fargo, one of his oldest bank investments. Not only has Buffett publicly supported the bank's managers, but Berkshire has only sold as many Wells Fargo shares as necessary to stay under a 10% ownership stake (important for regulatory reasons). The bank's recent results and the departure of CEO Tim Sloan may signal that things are finally starting to turn around for the bank, which has been one of the sector's worst performers.
The soft drink giant has been in Buffett's portfolio for nearly three decades and is one of Berkshire's best long-term performers. Buffett paid $1.3 billion for 400 million shares of Coca-Cola, and the current market value translates to a 1,350% gain. Plus, the investment pays Berkshire a staggering $640 million in dividend income per year. With a 55-year track record of annual dividend increases, it's safe to assume that this income will continue to rise for the foreseeable future as well.
5. American Express
It's tough to over-emphasize the value Buffett places on great management and a strong brand, and American Express certainly has both. American Express has done a solid job of building pricing power and has a more affluent cardholder base than rival credit card issuers. Plus, it's done a good job of investing in new products that appeal to the crucial millennial generation, which has helped it more than replace its lost revenue from the former Costco partnership.
6. Kraft Heinz
To say that Kraft Heinz has been a disappointment for Buffett and Berkshire's investors would be a massive understatement. Less than two years ago, the food giant was Berkshire's number one investment with a value of $28.3 billion -- now it's dropped to the sixth spot and has declined by more than 60%. Not only has Kraft Heinz generated dismal earnings results, but the company is under SEC investigation for its accounting practices and internal controls.
7. U.S. Bancorp
You've probably noticed by looking at the table that Buffett loves bank stocks, and U.S. Bancorp is one of his favorites thanks to its fantastic management, its asset quality, and its track record of being one of the most profitable and efficient banks in the U.S. year after year. Buffett has added considerably to Berkshire's U.S. Bancorp investment in recent years, and I wouldn't be surprised to see it get even bigger. It's generally undesirable to own more than 10% of a bank, but there's still some more room before Berkshire reaches the danger zone here.
8. JPMorgan Chase
We don't know for sure why Buffett decided to add JPMorgan Chase to Berkshire's portfolio in 2018, but it certainly makes sense. Buffett loves bank stocks, is a big fan of CEO Jamie Dimon as a manager, and with nearly 10% of both Wells Fargo and Bank of America, it's a logical move to invest in another big bank that's best-in-breed by many metrics.
9. Moody's Corporation
Moody's is one of the major bond-rating agencies, and along with Standard and Poor's has an effective duopoly on its market. Try this -- look up the debt rating for any major publicly traded company, and you'll likely see a rating that looks like A-/A3 to represent both of these agencies. Moody's has been a highly profitable investment for Berkshire, with a cost basis of just $248 million -- about 6% of the stake's current market value.
10. Bank of New York Mellon
Buffett added significantly to Berkshire's bank investments in 2018, and Bank of New York Mellon is one of the ones that saw the largest increases. The oldest continuously operating bank in the U.S, Bank of New York Mellon has a diverse revenue stream that includes massive asset management and institutional banking businesses.
So how do you use this list? It's certainly a nice idea generator.
However, there are caveats. Due to Buffett's investing success and the power of compounding returns, the magnitude of Berkshire's assets is huge -- over $700 billion as of this writing. Buffett talks about using his elephant gun for major transactions because only really big purchases move the needle for him. Even buying a small-cap company outright wouldn't do much to affect Berkshire's overall performance.
As a result, when we look at this list of his top 10 stock holdings, only large-cap stocks are represented. And the bulk of many of these purchases was made years or even decades ago vs. Buffett putting in a ton of new money today.
Buffett himself has said he'd make different moves with "just" a million dollars than he would with his large portfolio.
That said, it's still an interesting list of Buffett-approved companies to consider. Of course, you could also just buy shares of Berkshire itself to get exposure to all 10 of these stocks and Buffett's portfolio management.
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Matthew Frankel, CFP owns shares of Apple, Bank of America, and Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Apple and Berkshire Hathaway (B shares). The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.