Warren Buffett’s Top 5 Largest Holdings for 2023

The king of generating cash flow.

• Apple is far and away Buffett’s biggest holding comprising 41,76% of the total portfolio. Berkshire Hathaway’s 894,802,319 shares at a reported price of US$138.20 per share amounts to an eye-watering US$123.66B.
• Latest purchase of Apple for Berkshire Hathaway came in Q2 2022 when 3,878,909 shares were added to the portfolio in the quarter.
• In recent times, Warren Buffett has expressed his affinity for the tech giant. While well known for its phone and laptops, Apple only has dominant market share in the tablet segment, after losing out to Samsung on the smartphone front later in 2022. But this isn’t a concern for Buffett who undoubtedly identifies Apple’s ability as an earnings and cash flow powerhouse as a rationale for investment.
• Buffett has reflected on the quality of Apple’s management as being a driving force for the company’s strength, remarking "Tim Cook, Apple’s brilliant CEO, quite properly regards users of Apple products as his first love, but all of his other constituencies benefit from Tim’s managerial touch as well".
• Buffett’s love of Apple is serious enough that he - a man renowned for maintaining a simplistic lifestyle - ditched his old flip phone for an Apple iPhone.
• Apple is able to generate a large amount of free cash flow which it utilizes in share buybacks. Buffett has spoken time and time again about why he favours stocks that return capital to shareholders through stock buybacks and Apple’s US$25.2B spent on open market buybacks is the largest by any company on the market. It’s an easy way to increase your percentage stake in the company without the need to lift a finger.

Delivering strong earnings in periods of rising rates.

• Despite being a fair way behind Apple, Bank of America still remains Berkshire’s second biggest holding, accounting for 10.30% of the portfolio. The company’s 1,010,100,606 shares are worth around US$30.51B at the last reported price of US$40.20 per share.
• Last addition was quite a while back in Q3 2020 when Buffett purchased a further 85,092,006 shares, which is interesting to note as he was selling other banks stocks during this time.
• Big banks have long been a favourite investment for Buffett and the reasoning is plain and simple. Banks are interwoven with the country’s infrastructure. In an abstract way, investing in America’s big banks is almost like investing in the growth of America as a whole.
• In a macroeconomic environment characterised by tightening monetary policy, banks present an interesting investment proposition. Rising interest rates are an opportunity for banks to increase their net interest margin - the difference between interest charged on loans and paid on customer deposits. While rising interest rates don’t guarantee the net interest margin will grow, it allows more wiggle room for the banks to do so.
• In the third quarter of 2022, net interest income came in at US$13.8B, an increase of US$2.7B, or 24%, over the same period the prior year. This increase was largely driven by higher interest rates but loan growth also helped boost this figure.
• Despite rising interest rates, total average loans and leases on Bank of America’s books increased 12% year-on-year to US$1.034T.

Excellent management finding success when oil prices rose.

• Chevron comes in at Berkshire Hathaway’s third largest holding heading into 2023. The energy company comprises 8.02% of the portfolio as at the last reporting date and the 165,359,318 shares held by Berkshire tip the scales at US$23.76B in value.
• Buffett has been quite active in purchasing Chevron with he most recent addition being in Q3 2022, the most recent quarter where we have reporting data where 3,919,169 new shares were banked away.
• Buffett’s continued investment in Chevron should come as no surprise in 2022. In the US market, the Energy sector was the only major market sector to achieve a positive return over the last 12 months, returning 34.07% for the year.
• The impacts of the war between Russia and Ukraine and the subsequent blacklisting of Russian oil imports from many Eurozone countries quickly lead to an energy crisis. The price of crude oil, natural gas and their refined products shot up dramatically to the dismay of consumers and to the joy of oil producers. Demand for American oil & gas peakesd and companies like Chevron were able to realise a much higher price per barrel at a fairly consistent operating cost, thereby increasing earnings potential.
• While the price of crude oil has since normalised, Buffett seemingly continues to favour Chevron as his energy stock of choice. In light of recent energy price increases, management has been able to deliver a return on capital employed (ROCE) of 25% in Q3 2022, a marked improvement over the ROCE of 14.3% in the same quarter last year.
• Strong management seems to be a consistent factor underpinning some of Berkshire Hathaway’s biggest investments. Chevron’s management have acted decisively throughout the quarter, paying dividends dividends of $2.7 billion, increasing investments by over 50 percent from last year, paying down debt for the sixth consecutive quarter, and repurchasing US$3.75 billion of shares.

The buy and hold success story.

• Coca-Cola is one of Berkshire Hathaway’s oldest current holdings. Buffett first bought Coca-Cola shares back in 1988 in the wake of the Black Monday crash of 1987.
• Over the years until 1994, Berkshire Hathaway accumulated more stock, bringing their position to 100 million shares. Not a single share has been sold since then and through the course of two stock splits, Berkshire Hathaway now find themselves holding 400,000,000 Coca-Cola shares at a measly cost base of US$1.3B.
• At the last reporting date, Coca-Cola shares were worth US$56.02 per share, valuing the holding at US$22.41B. Not a bad return on initial investment.
• Berkshire Hathaway’s investment in Coca-Cola was a quintessentially Buffett-style play. After the market crash of 1987, Coca-Cola was simply a high quality company at a cheap price. Coca-Cola is one of the most recognisable brands worldwide and Buffett identified the benefits that come along with it. Expansive distributor networks, strong retail relationships and deep market penetration that help protect the company from facing rising competition.
• A key investment tenet for Warren Buffett is that a company must have key competitive advantages that can be replicated for years to come, and Coca-Cola has done just that; maintaining a clear competitive lead over Pepsi (NasdaqGS:PEP) in terms of market share, revenue and brand value.

Recognisable American brand with high quality credit.

• The fifth largest holding for Berkshire as we enter 2023 is American Express.
• Buffett has invested in American Express since the 1960s and hasn’t bought or sold a single share in the company since 1998.
• The 151,610,700 Berkshire shares in American Express were valued at US$20.45B at the last reporting date, or 6.91% of the portfolio at the reported price of US$134.91 per share.
• Buffett’s initial investment in AmEx pre-dates Berkshire Hathaway and arose in the fallout of the Salad Oil Scandal. As the Salad Oil Scandal collapsed and American Express faced heavy losses, Buffett saw an opportunity to invest in a company that had its valuation wiped but an underlying business that pointed to a much higher valuation.
• In keeping with the investment style of Berkshire Hathaway, American Express is one of the most recognisable brands and this investment approach makes total sense. A person looking to open a credit card will have American Express on their mind. This leads to strong account growth and a persistent advantage in customer acquisition.
• American Express’ Platinum and Centurion cards are able to command such high annual fees based largely off of brand recognition and the rewards that go along with being an exclusive American Express cardholder. Customers with conviction to a rewards scheme are more likely to be retentive as well as more relaxed with their expenditure.
• According to S&P Global, American Express also has the lowest charge-off rate among the six major credit card issuers in the United States. Charge off rates cover the total defaults on credit card loans as a percentage of outstanding credit card balances. American Express’ charge off rate of 0.76% comes in much lower than its competitors which all range from 1.10-1.45%. This is an indication that American Express is in a much more advantageous position over its competitors, especially as we enter times of economic uncertainty and tightening household budgets.
• Despite tough economic conditions, AmEx has still been able to generate a dollar, with their total revenues net of interest expense coming in at US$6.2B, up 27 percent from US$4.9B a year ago. An increase that was primarily driven by increased Card Member spending.