With the exception of these three companies, Buffett has completely reduced his exposure to Berkshire stocks.
Warren Buffett hasn’t been well-liked by the stock market lately. Chairman of Berkshire Hathaway (BRK.A) (BRK.B 0.24%) For eight consecutive quarters, he sold more shares than he bought in his company’s stock portfolio. This involves selling some stake in your most profitable positions.
He began selling Berkshire’s huge holdings in Apple late last year, selling more than two-thirds of his holdings in the past four quarters. Last quarter, we also focused on Bank of America. Since the end of June, he has sold 26% of his second-largest position in Berkshire.
While Buffett has pared down some of Berkshire’s largest stock holdings and sold all his smaller positions, there are three top stocks he plans to hold indefinitely. Buffett describes these businesses as “really great” businesses, and they may be worth adding to your portfolio.
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1. American Express
Buffett begins his rise to fame at American Express. (AXP 1.73%) I haven’t touched it in over 20 years since then in the early 1990s.
American Express distinguishes itself from most other credit card issuers by operating its own payment network. Banks typically partner with third-party payment networks, such as Visa or Mastercard, to process payments every time someone uses or swipes their credit card. These two businesses generate billions of dollars in revenue simply by reliably moving funds from one account to another.
As its own network operator, American Express can cover all swipe fees. Last quarter, sales rose 4% year-over-year to $8.8 billion, accounting for more than half of total revenue. This growth was a bit disappointing, as AmEx’s business customers (about 30% of the total) lagged behind consumers and international cardholders.
However, while network volume growth is slowing, the company sees an increasing number of customers choosing premium cards with higher annual fees. Card fees increased 18% year over year to $2.2 billion. Net interest income is also a growing revenue stream, increasing 16% to more than $4 billion last quarter.
The move to premium cards is a major competitive advantage for American Express. This suggests the company has a wealthier customer base and is less susceptible to spending cuts during economic downturns. This change will encourage more merchants to partner with AmEx to attract high-spending consumers, increasing the value of owning an AmEx card.
American Express stock is up 45% so far in 2024. As a result, the company’s expected price/earnings ratio (PER) was approximately 18 times. Stocks have spent more time trading below their levels over the past decade than above them, which can make investors hesitant to add price-to-earnings ratios to stock prices. Current price. Still, the company’s business is strong, and it could be worth buying if the stock price falls.
2. Coca Cola
coca cola (KO 0.39%) It has also been owned by Buffett for many years and was founded in the late 1980s and early 1990s.
Coca-Cola has several competitive advantages that make it an attractive long-term stock for Mr. Buffett. First of all, the brand is iconic worldwide. And in addition to its namesake product line, the company owns 11 other billion-dollar brands.
Its brand strength is reflected in the company’s ability to raise prices amid rapid inflation. The company’s prices rose 10% year-over-year last quarter, but management noted that 4 percentage points was due to a market experiencing high inflation.
Another advantage is Coca-Cola’s global reach. This allows you to maximize the value of your supply chain and distribution transactions. Easily test new products to gain an advantage in negotiating shelf space with retailers. This has allowed it to expand its already dominant market share around the world.
Stock prices have fallen from all-time highs reached earlier this year. Currently, the company’s forward P/E ratio is 22 times, which is a reasonable level. This is roughly in line with the company’s average and is a reasonable price for a market leader.
3. Western Oil
western oil (Oxy -0.75%) is a relatively new addition to Berkshire’s portfolio. Buffett acquired a large stake in the business in 2019, acquiring $10 billion worth of preferred stock to support Occidental’s acquisition of Anadarko.
Since then, he has ended up holding a large stake in common stock while Occidental has canceled some of Berkshire’s preferred stock. It currently owns approximately 27% of Occidental’s outstanding shares.
The energy company has far more influence on oil prices than other integrated utilities. Its location in the Permian Basin of the Southwest provides a relatively cheap source of oil production for the United States.
The company recently further strengthened its position with the acquisition of CrownRock, which completed the acquisition in early August. Chief Executive Officer Vicki Holub estimates the deal will add $1 billion to free cash flow as long as West Texas Intermediate crude trades around $70 a barrel.
Unfortunately, oil prices have fallen significantly over the past six months, and Occidental is in a precarious position given the amount of debt it has taken on to acquire Crown Rock. By leveraging its exposure to oil production, Occidental’s stock price has fallen to levels not seen since early 2022.
Interestingly, Buffett has not taken advantage of the opportunity to buy stocks at such low prices, even though he has been buying stocks for over two years in a row. In a letter to shareholders in 2023, he wrote: “No one knows what oil prices will do in the next month, year or decade. However, Vicky ( (Hollub) knows how to separate oil from rock. That’s an extraordinary talent, and something of value to her shareholders. ”That makes it all the more strange that Buffett hasn’t bought anything in the past four months or so.
That said, Buffett may be satisfied with Berkshire’s current ownership, which is already a sizable stake. He said he has no interest in taking control of the company.
Occidental’s current stock price is around $50, and its enterprise value to EBITDA (earnings before interest, taxes, depreciation and amortization) multiple is just 5.3x. Despite oil price pressure, this is an attractive price for the stock. And if we believe oil prices will recover, Occidental should see big gains in free cash flow and stock price as a result.
Bank of America is an advertising partner of The Motley Fool’s Ascent. American Express is an advertising partner of The Ascent, a Motley Fool. Adam Levy has held positions at Apple, Mastercard, and Visa. The Motley Fool has positions in and recommends Apple, Bank of America, Berkshire Hathaway, Mastercard, and Visa. The Motley Fool recommends Occidental Petroleum and recommends the following options: A long January 2025 $370 call on Mastercard and a short January 2025 $380 call on Mastercard. The Motley Fool has a disclosure policy.
