Although Berkshire Hathaway’s $373 billion portfolio contains 45 stocks and two index funds, not all of the Oracle of Omaha’s holdings are equal.
For nearly six full decades, Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%) CEO Warren Buffett has been putting on a show for Wall Street. Whereas the benchmark S&P 500 has gained a healthy 33,000%, including dividends, since the affably named “Oracle of Omaha” became Berkshire’s CEO, Buffett has overseen just shy of a 5,000,000% aggregate return in his company’s Class A shares (BRK.A), as of the closing bell on April 25.
As you can see, there’s a very good reason why investors pay close attention when Warren Buffett has anything to say about investing, the stock market in general, or the U.S. economy.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
Although Berkshire’s $373 billion portfolio contains stakes in 45 stocks and two index funds, not all of the Oracle of Omaha’s holdings are considered equal.
In Warren Buffett’s latest annual letter to shareholders — Buffett has written a letter to his shareholders on an annual basis for nearly a half-century — he spoke of eight businesses that he and his team plan to hold stakes in “indefinitely.” Let’s take a closer look at these eight phenomenal companies.
No. 1: Coca-Cola
The first stock Buffett and his top investing aides, Todd Combs and Ted Weschler, have no intention of ever selling is beverage company Coca-Cola (KO). Coca-Cola is Berkshire’s longest continuous holding (since 1988), and thanks to a minuscule cost basis of $3.2475 per share is generating a jaw-dropping annual yield on cost of nearly 60%!
One reason Coca-Cola has been a rock-solid investment for decades is because it’s a consumer staples stock. Regardless of how well or poorly the U.S. and global economy are performing, people are still going to buy basic need goods, such as beverages. This leads to predictable cash flow for Coca-Cola in virtually any economic climate.
Coca-Cola also enjoys virtually unsurpassed geographic diversity, with operations ongoing in all but three countries (Cuba, North Korea, and Russia). This means it’s bringing in predictable operating cash flow from developed countries, and moving its organic growth needle in emerging markets. All told, Coke’s product portfolio contains over two dozen brands that are generating in excess of $1 billion in annual sales.
The other advantage Coca-Cola brings to the table is its top-tier marketing. Recently, it’s been devoting more than half of its marketing budget to online channels and utilizing artificial intelligence (AI) to tailor ads to reach a younger audience. However, Coca-Cola has a storied history that stretches back more than a century. It can lean on this history, as well as its well-known brand ambassadors, to connect with mature audiences.
No. 2: American Express
The second stock the Oracle of Omaha intimated Berkshire will hold forever in his annual letter to shareholders is credit-services provider American Express (AXP -0.62%). Buffett’s company has continuously held shares of AmEx since 1991.
The reason Warren Buffett and his team have gravitated to financial stocks for so long is because they’re able to take advantage of long-winded periods of expansion for the U.S. economy. Even though recessions are a normal and inevitable part of the economic cycle, none of the 12 U.S. recessions since the end of World War II surpassed 18 months in length. Meanwhile, most expansions have endured multiple years, with two sticking around for longer than a decade.
The reason lengthy periods of growth are so important is because American Express is a double dipper. It’s the nation’s No. 3 payment processor by credit card network purchase volume, which allows it to generate fees from merchants. However, it’s also a lender, which means it’s collecting possible fees and interest income from its cardholders. Disproportionately long economic expansions allow American Express to clean up from both sides of the transaction aisle.
Furthermore, AmEx has historically attracted high earners as cardholders. People with above-average incomes are less likely adjust their spending habits when minor economic disruptions arise. In theory, this should help American Express navigate downturns in the U.S. economy better than other lending institutions.
Image source: Getty Images.
No. 3-No. 7: Mitsubishi, Mitsui, Itochu, Sumitomo, and Marubeni
Five additional companies that Warren Buffett has no plans to ever sell are the Japanese trading houses that Berkshire has been building positions in since July 2019. These five companies are Mitsubishi (MSBHF 0.55%), Mitsui (MITSF 0.25%), Itochu (ITOCF 1.14%), Sumitomo (SSUM.Y 2.06%), and Marubeni (MARUY 0.93%).
Aside from believing the Japanese economy will grow over the long run, Buffett’s faith in these five businesses boils down to their operations, management teams, and shareholder-friendly practices.
Mitsubishi, Mitsui, Itochu, Sumitomo, and Marubeni have their proverbial hands in more cookie jars than can be counted. These are companies that trade or import/export all types of foods, energy commodities (including oil and natural gas), chemicals, apparel, healthcare products, and so on. They’re perfectly positioned to take advantage of disproportionately long periods of growth and can easily navigate short-lived downturns.
In his latest annual letter to shareholders, Buffett was clear to note that the CEOs of Mitsubishi, Mitsui, Itochu, Sumitomo, and Marubeni were taking far less in compensation than what’s typically seen from American CEOs of prominent corporations. These companies are also reinvesting a significant portion of their earnings back into various aspects of their operations.
Lastly, Mitsubishi, Mitsui, Itochu, Sumitomo, and Marubeni have all been actively buying back their common stock. Buffett has always been a huge fan of buybacks because they increase the ownership stakes of existing shareholders. Further, share repurchases can increase earnings per share (EPS) for companies with steady or growing net income.
No. 8: Occidental Petroleum
The eighth phenomenal stock that Warren Buffett plans to hold forever in Berkshire Hathaway’s $373 billion investment portfolio is energy company Occidental Petroleum (OXY -0.15%). Buffett and his investment aides have purchased over 248 million shares of Occidental common stock since the start of 2022.
Having nearly $17 billion currently invested in Occidental — not counting the $8.49 billion in Occidental preferred stock Berkshire also holds — is a pretty clear indication that Berkshire’s brightest minds expect the spot price for crude oil to remain high for years to come.
During the COVID-19 pandemic, demand for energy commodities fell off a cliff because of lockdowns and historic demand uncertainty. Even with oil and gas companies now increasing their capital expenditures, the global supply of crude oil remains tight. When coupled with Russia’s invasion of Ukraine, a recipe exists for worldwide supply constraints on crude oil to push spot prices notably higher.
Although Occidental Petroleum is an integrated energy company, it generates the bulk of its revenue and operating income from drilling. If the spot price of crude heads higher, few oil stocks are going to benefit more than Occidental.
The one concern with this company is its debt-laden balance sheet. But if the spot price of crude remains elevated, paying down its outstanding debt shouldn’t be a problem.