Warren Buffett is regarded as one of the greatest investors of all time, having generated tremendous returns for Berkshire Hathaway shareholders over the past several decades. Often called the “Oracle of Omaha” for his investing prowess, many individual investors look to emulate Buffett’s approach in their own portfolios.
One way to invest like Buffett is to analyze the top stock holdings in the Berkshire equity portfolio, which total over $300 billion in market value. By studying Buffett’s highest conviction picks, we can gain insight into his investment strategy and criteria for a great business.
Let’s take a closer look at five of Buffett’s favorite stocks – Bank of America, Apple, American Express, Kroger, and HP Inc – to understand why he owns these companies and how individual investors can benefit by following Buffett’s lead.
1. Bank of America – A Giant U.S. Bank Buffett Has Stuck With
Berkshire Hathaway owns over 1 billion shares of Bank of America (NYSE: BAC) worth about $34 billion, making it one of Buffett’s largest stock positions. He has held BAC stock for over a decade, including during the Great Recession, highlighting his long investment horizon and conviction in the business.
As one of the biggest U.S. banks with $2.8 trillion in assets, Bank of America is a dominant force in consumer and commercial banking, wealth management, and investment banking services. The bank generates enormous recurring revenue from its deposit base, lending activities, credit card operations, and other fee-based businesses.
2. Apple – Buffett’s Favorite Tech Stock By Far
It’s abundantly clear from the nearly $181 billion Berkshire has invested that Buffett views Apple (NASDAQ: AAPL) as an absolutely elite business and one of his highest conviction ideas. Apple is by far Buffett’s largest public stock investment ever.
In many ways, Apple represents the ideal Buffett growth stock thanks to its world-class brand, innovative products and platforms, and immense capital return program. Interbrand ranked Apple as the #1 global brand for the 11th straight year, speaking to its branding power and customer loyalty.
3. American Express: A High-Quality Financial Stock For The Long Run
Rounding out Buffett’s top three holdings is credit card leader American Express (NYSE: AXP), which Berkshire has been continuously invested in for over 30 years, demonstrating Buffett’s long investment horizon once again.
As one of the top payment networks globally, AmEx profits from both sides of transactions – charging merchant fees and making interest income from cardholder spending. During economic expansions it sees low credit losses and benefits greatly from high consumer spending.
4. Kroger: Betting on a Grocery Giant
One newer Berkshire stock pick is Kroger (NYSE: KR), one of the largest supermarket chains in the U.S. with nearly 2,800 stores under two dozen banners. Recently, Kroger announced a $25 billion deal to purchase competitor Albertsons.
Combined, Kroger and Albertsons would operate nearly 5,000 grocery stores countrywide, cementing Kroger’s position as a dominant national grocery store leader. Warren Buffett appears to be making a bet on consolidation in the grocery space and Kroger’s ability to drive higher profit margins long-term. Kroger also pays a growing dividend.
5. HP Inc: Cash Flow and Capital Returns
Rounding out Buffett’s top stock picks is long-time tech hardware company HP Inc (NYSE: HPQ), which Berkshire owns a $1.5 billion stake in. While not a rapid growth story, HP produces steady earnings and significant cash flows from its legacy printer and PC operations.
Like Apple, Buffett seems attracted to HP’s substantial capital returns via dividends and share repurchases. The company recently authorized a new $16 billion share repurchase program on top of its long-running dividend. For investors like Buffett seeking capital gains and income, HP delivers.
By investing patiently for the long haul in these high quality financial, consumer, and technology brands, Warren Buffett has compounded wealth enormously over many decades. Retail investors would be wise to learn from his approach and add some classic Buffett stocks to their own diversified portfolios.