Warren Buffett is arguably the greatest investor of all time. Born in Omaha, Nebraska, Buffett went to school in Columbia Business School, where he studied value investing pioneered by Benjamin Graham. Later, Buffett founded Berkshire Hathaway, which became Buffetts conglomerate and way of investing in value companies. Despite giving away billions of dollars, Buffett is one of the richest men in the world.According to the Bloomberg Billionaires index, Buffett was worth $89.3 billion, ranking 4th in the world as of May 2, 2019. Given government regulations, Buffetts Berkshire Hathaway has to disclose its 13F equity positions every quarter. Lets take a look at 5 of Buffetts favorite companies.
Our research has shown that hedge funds small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Buffetts Berkshire Hathaway held almost 250 million shares of Apple as of December 31. The positionis Buffetts biggest, representing 21.51% of his equity portfolio. Although Buffett hasnt been known for being particularly tech savvy and his IBM bet failed to pay off versus the market, Apple has been a good performer of laterising 33% year to date and 27% over the last four quarters. Apple shares are supported by the companys strong ecosystem, large share buybacks, and numerous iphone fans. The stock presently has a forward P/E of around 16.48. Given that Buffett is a long term investor and that it would be pretty hard for Buffett to get out of his big position all at once, Buffett seems pretty confident Apple will continue to deliver good results for the years to come.
Berkshire Hathaway reported a stake of 896.17 million worth slightly north of $22 billion at the end of December, making the bank Buffetts second largest equity position in his 13F portfolio, accounting for roughly 12.06% at the end of 2018.James Fotheringham of BMO has a $37 price target on the equity after the banks first quarter earnings beat. Investors like Bank of Americasdividend yield of around 2% and its forward P/E of under 10.
Buffett sure likes banks. Another big four bank, Wells Fargo, comes third in Buffetts equity portfolio, representing 10.74% of his 13F portfolio at the end of December. Berkshire Hathaway held 426.77 million shares worth $19.67 billion at the end of 2018.According to some analysts, there is a Fed proposal that might allow 25% ownership of a bankwithout causing some restrictive regulations versus the previous 10%. Whether the Fed proposal will actually pass and whether Buffett will buy any more shares of Wells Fargo or Bank of America is debatable, however.
Buffett also likes Coca-Cola, as Berkshire Hathaway owned 400 million shares at the end of December. That position was worth $18.94 billion.Seeing as how Coca Cola pays a dividend of $1.60 per share per year, that translates to a staggering $640 million in dividends to Berkshire Hathaway each year from the maker of Coca Cola and Sprite. Although some believe sugary drinks could undergo secular decline due to consumers moving into more healthy alternatives,Coca Cola shares havent showed any stress. Shares are up 12% over the last four quarters.
Buffett also likes another financial company, American Express, which accounted for 7.89% of his equity portfolio at the end of December.Eric Wasserstrom of UBS downgraded American Express to Neutral but increased his target to $118 from the previous $113. The analyst is more cautious due to potential rising credit losses and the forward earnings multiple of 14.7 which is a little higher than the longer term average of 13.3 times.