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For the better part of nearly six decades, Berkshire Hathaway (BRK.A) CEO Warren Buffett has been running circles around the broader market. Whereas the broad-based S&P 500 has gained roughly 31,200%, including dividends paid, since the Oracle of Omaha became CEO in the mid-1960s, Berkshire's Class A shares (BRK.A) have skyrocketed by 4,384,747%, as of the end of 2023.
Warren Buffett's phenomenal investment track record has garnered him quite the following. Considering how profitable it's been to ride the Oracle of Omaha's coattails, it's not uncommon for investors to mirror Buffett's trading activity.
Despite an exceptionally strong year for equities in 2023, there are still a handful of companies catching the attention of Buffett and his investment team. As we lift the curtain on 2024, Warren Buffett is betting big on the following five stocks.
Apple
After the first trading day of the new year, tech stock Apple (AAPL) accounted for nearly 47% of Berkshire Hathaway's $362 billion investment portfolio. But even though Apple has represented an outsized position for years, it didn't stop Buffett and his team from purchasing more than 20 million additional shares last year.
Apple checks most of the key boxes Warren Buffett and his investing lieutenants (Todd Combs and Ted Weschler) look for in a company. It offers brand-name products and services, has a well-trusted management team, is highly profitable, and has an exceptionally loyal customer base.
More specifically, Apple's iPhone has gobbled up more than half of U.S. smartphone market share. Meanwhile, the company's services segment continues to grow like wildfire, with a shift to subscription services expected to lift the company's operating margin over time and lessen the sales fluctuations observed during iPhone replacement cycles.
Apple's capital-return program is also unmatched among publicly traded companies. The world's largest public company by market cap is doling out $15 billion annually in dividend payments, and has repurchased over $600 billion of its common stock since the start of 2013.
The one knock against Apple is its valuation. While Warren Buffett is typically a sticker for value — this is something he learned decades ago from the late, great Charlie Munger — Apple is trading for nearly 27 times forward-year earnings, which is historically high given its recent lack of growth.
Bank of America
Another top holding Warren Buffett and his investing aides are clearly betting big on in the new year is Bank of America (BAC -0.78%). Though Berkshire entered 2023 with 1.01 billion shares of BofA already in its portfolio, Buffett and his investing team proceeded to purchase more than 22.7 million additional shares in the March-ended quarter.
The lure of bank stocks for Warren Buffett is that they're cyclical. Even though recessions are a perfectly normal and inevitable aspect of the economic cycle, downturns are short-lived. Not one recession following World War II has lasted longer than 18 months. That compares to two periods of economic growth that lasted at least a decade. Disproportionately long periods of expansion allow banks to grow their loan portfolios and generate valuable interest income.
Speaking of interest income, no U.S. money-center bank has benefited more from the Federal Reserve's aggressive rate-hiking cycle than Bank of America. A collective 525-basis-point increase in the federal funds target rate since March 2022 has lifted the interest rates on outstanding variable-rate loans and boosted BofA's net interest income by billions of dollars each quarter.
Investors also have to be pleased with Bank of America's investments in technology paying off. As more users shift to digital banking, which is considerably cheaper for banks than in-person interactions, Bank of America has the option of consolidating some of its physical branches and lowering its operating expenses.
As long as Bank of America's stock trades at or around its book value, you won't have to twist Warren Buffett's arm to potentially buy more shares.
Occidental Petroleum
It's also plainly evident that Warren Buffett is betting big on energy stock Occidental Petroleum (OXY -1.14%) in 2024. Berkshire Hathaway added more than 49 million shares of Occidental's common stock in 2023, with Buffett and his crew building this 243.7-million-share position from scratch over the past two years.
The Oracle of Omaha and his team aren't riding a $14.6 billion position without a purpose. They're very likely betting on the spot price of crude oil to remain elevated, if not head even higher.
In February 2022, Russia invaded Ukraine, which created uncertainty for Europe's energy supply needs. Additionally, global energy companies meaningfully reduced their capital expenditures for three years during the COVID-19 pandemic. Both of these factors have tightened global oil supply, which is likely to have a positive effect on the spot price of crude oil.
What makes Occidental Petroleum so attractive is its reliance on drilling. Although it's an integrated oil and gas company that also operates chemical plants, it generates a disproportionate percentage of its revenue from drilling. If the spot price of crude remains elevated or heads even higher, Occidental's cash flow will benefit immensely.
Just keep in mind that Occidental's balance sheet is a potential question mark. Despite paying down more than $17 billion in net debt following its acquisition of Anadarko, it's still sitting on $18.6 billion in net debt, as of Sept. 30, 2023. It very much needs the spot price for crude oil to remain high to improve the flexibility of its levered balance sheet.
Capital One Financial
A fourth stock Warren Buffett is betting big on in the new year is financial-services provider Capital One Financial (COF 0.97%). Berkshire's investment team gobbled up a little more than 9.9 million shares of Capital One during the first quarter of 2023, and purchased around 2.55 million additional shares during the June-ended quarter. Entering 2024, this position was worth north of $1.6 billion.
Similar to BofA, Warren Buffett's billion-dollar bet on Capital One looks to be a function of cyclicality and value.
Capital One is best-known as being one the nation's largest issuers of credit cards. The company closed out September with $144 billion in credit card loans on its books, $137.5 billion of which can be traced to the United States. With the U.S. economy shrugging off recessionary fears and the U.S. savings rate declining, Capital One Financial's credit-services segment has enjoyed an ideal operating environment.
The one caveat to the above is that Capital One's loan portfolio tends to be more reliant on subprime borrowers, when compared to the typical U.S. lender. If the U.S. economy contracts, subprime borrowers are, historically, likelier to default on their payments. There are a couple of money-based metrics that suggest 2024 could be a difficult year for the U.S. economy and stock market.
The other lure with Capital One Financial is its valuation. Similar to Bank of America, it's trading right around its book value and is sporting a forward-year earnings multiple of less than 10.
Berkshire Hathaway
The fifth stock Warren Buffett is betting big on for 2024 is none other than his own company, Berkshire Hathaway. The Oracle of Omaha and late executive vice chairman Charlie Munger approved the purchase of Berkshire Hathaway stock for 21 consecutive quarters (July 2018-September 2023), totaling an aggregate of more than $72 billion.
Since Warren Buffett's company doesn't pay a dividend, buying back stock is one of the easiest ways to reward existing shareholders. Conducting more than $72 billion in repurchases is slowly but surely increasing the ownership stakes of Berkshire's investors. It's a way of driving home the long-term ethos that Buffett and Munger have championed for decades.
Furthermore, repurchasing stock reduces the number of shares outstanding, which for companies with steady or growing net income — i.e., Berkshire Hathaway, sans unrealized changes in the value of its investment portfolio — can increase earnings per share (EPS). A boost to EPS can make a fundamentally attractive company like Berkshire all the more desirable for value-seeking investors.
I believe it's also worth suggesting that Buffett's aggressive share buyback program reflects the confidence he and Munger had in the company they'd built over many years. This dynamic duo loaded their company's investment portfolio and owned assets with cyclical businesses that are poised to benefit from extended periods of economic growth.
Berkshire Hathaway is the stock Warren Buffett is virtually guaranteed to buy in 2024.
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