Warren Buffet, a renowned investor, has a unique approach to investing. He is drawn to companies with exceptional leadership and a consistent potential for earnings. His strategy involves acquiring complete businesses, but he is also content with owning a portion of a promising company.
Warren Buffet and the Late Charlie Munger’s investment strategy was not limited to a specific sector. They were adept at identifying emerging brands, adhering to robust business models, and paying a fair price for great companies.
This approach led to the creation of one of the most diverse investor portfolios ever. Berkshire Hathaway, the company managing Buffet’s portfolio, has recently increased its stake in the oil & gas sectors and maintained an overweight position in the tech and beverage industries, according to the latest 13F filings.
The five stocks that form the pillars of Warren Buffet’s $347 billion portfolio are not just any companies. They are companies that showcase long-term promise and adaptability to trends, instilling a sense of optimism about their investment potential.
With excellent management at their helm, these companies are well-equipped to drive scale and innovation, making them attractive investment opportunities.
1. Apple
Market Cap: $2.61 trillion
52-week high/low: $164.08-$199.62
3-Year Sales Growth Rate: 7%
According to the filings, Berkshire Hathaway recently sold Apple shares, but the trillion-dollar company still retains over a 50% stake in Buffet’s portfolio. Latest operational hurdles, cyclical sales of iPhones, and stiff competition from rivals like Huawei have slowed product sales and overall growth.
However, Counterpoint Research highlighted that smartphone shipments could witness a 3% YoY rebound this year and stabilise. They see Apple facing headwinds in traditional markets as high interest rates continue to impact consumer spending.
Another factor adding to the slump is the cyclical pattern of iPhone sales, where one might delay buying the higher model and wait for their existing models to become obsolete.
Apple’s revenue from services, encompassing the App Store, Apple TV, payment services, and iCloud, has continued to grow.
Furthermore, its recent launch of Apple Vision Pro and speculations around the Apple Car align with its nearly 14% year-over-year rise in 2023 R&D spending to $29.9 billion. During an earnings call, CEO Tim Cook said the jump was due to factors like AI and machine learning.
Global Mac sales also recovered their old momentum. Sales rebounded in the last two quarters after dropping to $6.84 billion in Q3 2023 from $11.5 billion in Q4 2022.
Despite the chip crisis, shipment delays, tougher competition, and prolonged sales cycles, Apple’s strategic capital allocation across business segments has helped it maintain a high return on capital of more than 30% in times of reduced profitability.
2. Chevron
Market Cap: $304 billion
52-week high/low: $139.62-$171.70
3-Year Sales Growth Rate: 35%
Buffet added this US energy giant to his portfolio in 2020 and hiked its allocation to 126.1 million shares, per its latest filings.
The company, known for its dividend payouts, witnessed soaring profits from record oil prices in 2022 when Russia invaded Ukraine, and the US economy navigated an uneven recovery. However, cooling oil prices last year dragged down Chevron’s profits and share price by 17% in 2023.
Stock prices slightly angled higher in February and have since climbed. The company witnessed record oil production in Q4 2023 after the successful takeover of PDC Energy and increased production in the Permian Basin.
The firm also acquired Hess Corporation for $53 billion in late 2023 for a 30% controlling stake of resources in the Stabroek Block in Guyana and a share of Bakken Shale assets in North Dakota. These moves could enhance Chevron’s upstream activities and refine product sales.
The utility firm currently pays almost $11 billion to shareholders in annual dividends. These payouts have increased by 30% since early 2021. Chevron was able to significantly lower debt levels in the last two years while maintaining healthy free cash flow.
Over time, the company sees increased capital spending as it plans to bump oil production by 3% from current levels by 2027. Chevron is also stepping up its ESG efforts to reduce greenhouse gas emissions.
CEO Mike Wirth announced that the company will dedicate $10 billion to lower carbon projects by 2028. As part of its 2050 net zero goals, the company will reduce carbon emissions intensity by 5% between 2016-28 to scale its traditional business more sustainably.
The US Energy Information Administration expected oil prices to hover around $81 a barrel this year and $78 in 2025. However, China, the largest oil importer, continues to influence global prices and demand as the mainland battles a stunted economic rebound.
3. Citigroup
Market Cap: $119 billion
52-week high/low: $38.17-$63.90
3-Year Sales Growth Rate: 31%
Under the leadership of CEO Jane Fraser, Citigroup embarked on a global overhaul in November 2023 that saw 5,000 of its workers depart the investment bank. It plans to downsize its 239,000 workforce by 20,000 over the next two years to simplify its operating model.
The collapse of the Silicon Valley Bank and UBS’s takeover of Credit Suisse left the banking sector vulnerable last year. The shake-up followed mass layoffs, rampant poaching, and stock declines amid an industry-wide business slowdown, primarily due to high inflation and interest rates.
However, Wells Fargo analyst Mike Mayo opined early this year that Citigroup’s historic restructuring will take its share price to a record $116 by 2026. Citi is his top pick in the banking sector.
He believes the bank is shedding its complex processes via new reporting structures, fewer management layers, and a focus on international expansion and segments like personal banking and wealth management services.
The bank’s annual revenue declined in 2021 to $71.89 billion. Since then, it has grown to $78.49 billion last year. The downsizing will improve its operating leverage and reduce overheads massively.
Mayo also expects Citi’s de-risking to minimise the impacts of the looming Basel 3 endgame capital rules. The vehemently opposed regulations would require banks to increase their cash reserves for times of volatility, impacting their cashflows.
Mayo said those looking for a “margin of safety” in the sector could bank on Citigroup. Furthermore, Citi’s low exposure to commercial real estate may also help it avert the worsening property landscape where projections for losses related to office space have reached $1 trillion.
4. Coca-Cola
Market Cap: $265 billion
52-week high/low: $55.55-$64.69
3-Year Sales Growth Rate: 11%
Buffet’s $1 billion investment in Coca-Cola in 1989 grew by a whopping 1,550% by 2020-end, excluding dividends! As of 2023, the beverage company was selling 200 brands of beverages in over 200 countries.
He understood early on that Coca-Cola, as the leader in its segment, had a strong brand image, distributor network, and connections that would sustain its market share. Over the years, the company has continued to expand and absorb rivals to stay relevant amid dynamic consumer demands.
Consumer preferences change over time, especially in the fast food and soft drinks segments. With more health-conscious people and awareness programs, the demand for Coca-Cola may gradually decline.
Management decided to keep revenues from bottling separately from syrup distribution. It divested some bottling plants to reduce overheads and is now increasingly positioning itself as a syrup distributor for diversification.
While the stock has rarely made headlines for its price, investors love its steady dividends and history of outperforming during market upheavals.
It has issued billions of dollars in bonds in the last few years, imposing an additional burden of repaying interest.However, Coca-Cola only carries a few capital-heavy assets, which may reduce the financial impact.
The company also has deep commitments towards lowering its massive carbon footprint. The Coca-Cola Hellenic Bottling Company was the first to issue a euro-denominated green bond of €500 million in 2022 to support its sustainable projects. Meanwhile, the parent group plans to reach net-zero carbon emissions by 2050 and reduce them by 25% between 2015-30.
5. Amazon
Market Cap: $1.834 trillion
52-week high/low: $101.15-$189.77
3-Year Sales Growth Rate: 12%
Jeff Bezos wanted to build a business model prioritising customer experience, last-mile delivery, and aggressive expansion. These attributes caught Buffet’s eye.
While Amazon offers various services and products across verticals today, it remains true to its principles, commitments, and roots in book retailing with a mega-repository of eBooks and paperbacks.
It expanded through a fundraising spree to gain a majority market share in different industries and overcome rivals by steeply slashing prices.
With a focus on cash flow than profits, Bezos’ business model kept adding other products to its offerings to generate multiple cash flow streams. There came a point when they didn’t have to raise any more funding for expansion.
The company has weathered several recessions and has only come back stronger. Experienced leadership ensured the company kept exploring other markets. Despite resistance to its cloud computing and IT infrastructure venture, Amazon Web Services (AWS) now make up 66% of the company’s operating income.
While enabling the sale of goods via an intuitive and safe platform is its primary function, advertising is also becoming Amazon’s new profit machine. The company collected $14.2 billion from only ad revenue in Q4 2023. Over 2 million third-party sellers are paying the company to promote their products to the 2 billion people who visit the online marketplace every month.
Analysts believe Amazon could generate $1 trillion in annual revenues by 2028, and AWS would contribute nearly $200 billion.
