Billionaire investor Warren Buffett’s company Berkshire Hathaway has a market cap of $661bn. It has two classes of shares. A single share of BRK-A is priced over a whopping $435k, meaning it’s really only for institutional investors. BRK-B is for anyone to buy and is priced around $289 today. Buffett has made a hugely successful career out of stock picking and I think it’s worth paying attention to Berkshire Hathaway’s portfolio.
A rising share price
Berkshire has been an incredibly successful business that has grown through the mergers and acquisition process of buying businesses, both partially and outright. The Berkshire Hathaway share price has appreciated over 520% since March 2009 and it’s up 56% in a year.
Its ownership of companies gives it a regular dividend stream. It chooses businesses in which it sees reasons for future growth from which it will profit.
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In Berkshire Hathaway’s most recent shareholder letter, Buffett said: “Owning a non-controlling portion of a wonderful business is more profitable, more enjoyable and far less work than struggling with 100% of a marginal enterprise”.
I think this is great advice for anyone deciding which stocks to buy. Choosing dividend stocks ensures shareholders can look forward to recurring income. But there’s also the potential for future capital gains if the company continues to grow and thrive. This can unlock the power of compounding, creating future wealth. I keep all this in mind when looking for stocks to buy and hold for the long term.
Economics and management
When Warren Buffett and his business partner, Charlie Munger, look for companies to invest in, they seek out good economic characteristics and good managers. The economics ensure Berkshire is buying stock at a fair price and a motivated management team ensures the company continues to grow.
It’s hard to judge a management team without understanding exactly how they work. But clues lie in how long they’ve been at the helm, how the company has progressed, and if it has a strategic path ahead. Reading annual returns can also give investors an idea of how the company is run.
Therefore, economics and management are two factors I also look for when considering which stocks to invest in.
Buffett’s Berkshire Hathaway stocks
Two US stocks in Warren Buffett’s Berkshire Hathaway portfolio that I like are Apple and Verizon.
Apple is the biggest shareholding in Berkshire’s portfolio. It needs no introduction being one of the world’s most recognised brands, selling sought-after devices. Apple benefits from recurring revenue through subscriptions as well as product sales.
It has a £2trn market cap, price-to-earnings ratio (P/E) of 28, and 0.7% dividend yield.
Apple has been buying back its shares adding value for shareholders. During the past four quarters it has bought back $77bn worth of stock. I think this shows a management team that has investor interests in mind.
American wireless network operator Verizon is a $233bn company with a P/E of 12 and 4.4% dividend yield. These metrics make it look undervalued. Meanwhile, the rollout of 5G is presenting a growth opportunity to telecommunications companies. Verizon could potentially make a killing introducing 5G fixed wireless connectivity to homes.
Economic uncertainty and regulatory changes pose a risk to owning these US stocks. But overall I’d happily add both Apple and Verizon to my Stocks and Shares ISA today.
