Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) has a stock portfolio worth roughly $161 billion, and while the company has given some responsibility to its two stock-pickers, the majority of investment decisions are still made by Warren Buffett himself. With an ever-growing stockpile of cash that nearly reached $100 billion at the end of last quarter, now could be a smart time for Buffett to put some of Berkshire's money to work by increasing these three stock positions.
|
Company |
Stock Symbol |
Recent Stock Price |
Current Number of Shares |
Market Value |
|---|---|---|---|---|
|
Apple |
AAPL |
$164.00 |
130,191,960 |
$21.4 billion |
|
Synchrony Financial |
SYF |
$30.79 |
17,463,000 |
$538 million |
|
Costco Wholesale |
COST |
$156.74 |
4,333,363 |
$679 million |
Data source: Berkshire Hathaway 13F filing with the Securities and Exchange Commission. Prices as of Sept. 1, 2017.
Berkshire may have already bought more of this tech giant
Tech giant Apple (AAPL +1.18%) is up more than 50% over the past 12 months, and recently hit a fresh all-time high. Since Buffett and his team began accumulating Berkshire's Apple stake, it's fair to say that they have made billions of dollars on the position.
Image source: The Motley Fool.
Even after the run-up in price, Apple still looks attractively valued. The upcoming iPhone 8 and other new products could result in massive earnings growth, and the stock trades for just 15 times next year's earnings expectations. Excluding Apple's $256.8 billion stockpile of cash, the business trades for just over 10.5 times earnings, a remarkably cheap multiple for a company with room for growth.
It's also worth mentioning that Berkshire's Apple stake could already have gotten bigger. The position sizes in the chart are based on Berkshire's SEC filings as of the end of the second quarter, and Buffett recently told CNBC that he was buying Apple during the quarter, but it's unclear whether all of the buying took place before June 30. As he put it, "I certainly was buying last quarter and I don't pay attention to the calendar when I'm buying."
Buffett has a lot of cash to work with, and I wouldn't be at all disappointed if he decided to put a significant amount of Berkshire's nearly $100 billion cash hoard toward growing the Apple stake.
Buffett may want to double down on this one
One of the most recent additions to Berkshire's portfolio is private-label credit card issuer Synchrony Financial (SYF +1.86%). The company issues credit cards for a long list of retailers, such as Wal-Mart, Amazon.com, Lowe's, and Gap, just to name a few.
There are several reasons to love Synchrony as a long-term investment. For one, private-label credit cards tend to charge significantly higher interest rates than standard credit cards. Even when you factor in an above-average charge-off rate, Synchrony's net interest margin is significantly higher than other credit card issuers, including longtime Buffett favorite American Express.
In addition, Synchrony has recently generated excellent growth that has outpaced the rest of the industry, and the company is aggressively returning capital to shareholders through both dividends and buybacks.
Finally, at just 11.4 times trailing-12-month earnings, the stock looks extremely cheap at the moment, especially when you consider that double-digit earnings growth is expected for 2018.
At about $538 million, Berkshire's stake in Synchrony is a relatively small investment, and represents a stake of just over 2% in Synchrony. Synchrony looks very attractive right now, and I'd like to see it become more of a major holding in Berkshire's portfolio.
Buffett loves to buy great stocks when they fall out of favor
Warehouse club Costco (COST 2.03%) has fallen by more than 12% over the past three months, and a big reason is Amazon's purchase of Whole Foods, which has sent shockwaves throughout the grocery business. While Amazon's entry into the grocery space indeed should be cause for concern to many of the industry's major players, Costco should be just fine.
For starters, most people don't realize that about three-quarters of Costco's profit comes from selling memberships. Second, Costco customers go for the shopping experience -- the samples, the food court, and the hunt for unexpected bargains. Third, as my colleague Dan Kline points out, Costco has successfully coexisted with Amazon for years.
Even with Amazon slashing prices and integrating Whole Foods into its Prime ecosystem, Costco will still have major cost advantages over Whole Foods, and there's no reason to believe that its loyal membership base is going anywhere anytime soon. In the meantime, I'd love to see Buffett take advantage of Costco's newly discounted share price.
