Warren Buffett-led conglomerate Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) has a portfolio of about 45 different common stocks, and its holdings change regularly. In fact, I just wrote an article about several new buys and sells Berkshire made during the fourth quarter of 2016. Despite this, Berkshire's largest stock investments haven't changed in some time. Here's a rundown of Berkshire's five largest stock holdings, and why Buffett loves them so much.
|
Company |
Symbol |
Number of Shares |
Market Value (2/16/2017) |
|---|---|---|---|
|
Kraft Heinz |
KHC |
325,634,818 |
$29.7 Billion |
|
Wells Fargo |
WFC |
479,704,270 |
$28.1 Billion |
|
Coca-Cola |
KO |
400,000,000 |
$16.2 Billion |
|
International Business Machines |
IBM |
81,232,303 |
$14.8 Billion |
|
American Express |
AXP |
151,610,700 |
$12.1 Billion |
Data source: Berkshire Hathaway SEC filings.
Image source: Getty Images.
1. Kraft Heinz
Buffett's massive stake in Kraft Heinz (KHC 0.39%) came from the 2015 merger of Kraft Foods with Heinz, and Buffett's shares represent a 25% stake in the combined company. In a nutshell, Buffett loves competitive advantages, and the economies of scale that come along with combining two massive food companies is right up Buffett's alley.
2. Wells Fargo
Wells Fargo (WFC +1.34%) has been a Warren Buffett favorite for some time now, and even after the banks infamous "fake accounts" scandal last year, Buffett hasn't sold a single share. During a November 2016 interview, Buffett called the bank an "incredible institution," and it's easy to understand why.
Simply put, Wells Fargo has higher-quality assets than its competition, and has consistently run a more efficient and profitable operation than the rest of the "big four" U.S. banks. Also, even after the scandal and the ensuing penalties, Wells Fargo is still the least-fined of the big four, by a wide margin.
3. Coca-Cola
Coca-Cola (KO 1.64%) is perhaps the most well-known Warren Buffett stock. Buffett has famously said that a "ham sandwich" could run Coca-Cola, meaning that the company is so efficient and well-organized that it doesn't matter who's sitting at the CEO desk -- one of the main reasons Buffett started buying Coca-Cola in 1988 and has never sold a single share.
Coca-Cola is a glowing example of the competitive advantages Buffett loves to see in his investments. The company has 20 different billion-dollar brands, and its flagship Coca-Cola brand name is one of the most recognizable in the world, which gives the company pricing power over rivals. Additionally, Coca-Cola's distribution network is one of the largest and most efficient in the world, resulting in cost advantages.
To sum up why Warren Buffett loves Coca-Cola so much as an investment, consider this Buffett quote: "If you gave me $100 billion and said to take away the soft drink leadership of Coca-Cola in the world, I'd give it back to you and say it can't be done."
4. International Business Machines
Warren Buffett has been building Berkshire's position in International Business Machines (IBM 0.61%), better known as IBM, since 2011. The investment initially came as quite a surprise to many Buffett followers, as he had generally avoided the tech sector up until that point.
As my colleague Tim Green explained last year, IBM's "stickiness" in the IT industry is what convinced Buffett to invest in the company. IBM's strategy involves providing integrated (hardware, software, and services) solutions for its clients, which creates major switching costs for clients. This advantage has remained, because IBM has done a great job of evolving with the industry, with its major investments in cloud computing, for example.
5. American Express
Many analysts have been skeptical about Buffett's decision to stick with his investment in American Express (AXP 0.48%), especially after the loss of its Costco partnership and with the emergence of several new disruptive payment technologies.
Buffett has acknowledged that Amex's business model is "under attack" but still likes the company as a long-term investment. He has repeatedly praised Amex's talented, shareholder-friendly managers, and loves the company's strong brand name and its ability to generate tons of cash. American Express also has the competitive advantage of an affluent group of cardholders who are very attractive to merchants, allowing the company to successfully charge higher payment processing fees than Visa or MasterCard.
The big Buffett stock you might not know about
This discussion of Warren Buffett's largest stock holdings wouldn't be complete without mentioning Berkshire's Bank of America (BAC 0.02%) investment. In 2011, in the wake of the financial crisis, Buffett invested $5 billion in Bank of America preferred stock, and as part of the deal, received warrants to buy 700 million shares of the bank for $5 billion at any time before September 2021.
This translates to a share price of just $7.14. Well, as I write this, Bank of America trades for $24.58, making the total value of Berkshire's Bank of America investment $17.2 billion including the preferred shares. This technically makes Bank of America Berkshire's third-largest investment, but since the company owns warrants, not common shares (yet), it's not included in the list.
However, Bank of America is an investment Buffett followers should keep in mind. After all, Buffett has referred to this as an investment Berkshire values highly, and has said that Berkshire is likely to purchase the shares just before the warrants expire -- possibly selling its preferred shares to do so.
