Warren Buffett's Top 5 Stocks for 2023

Well, it's the beginning of a new year, and what an awesome time to revisit the stock portfolios of the world's best investors, like Mr. Warren Buffett, and check out what they're holding for the year ahead. So, in this video, let's look at Warren Buffett's top five stock holdings leading into 2023 and do a bit of analysis and a breakdown as to why he holds each one.

Now, of course, this is never a shopping list, and you would never go out and blindly buy what these great investors hold. But with a lot of newcomers itching to get into the stock market in 2023 after a 20% drop last year, there's still no doubt that looking into these super investors' portfolios can give you a great ideas list for starting your own research.

So, with that said, let's turn our attention to the granddaddy of value investing and see what the Oracle of Omaha's top five positions are leading into 2023.

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Very quick points of context before we dive into the largest holdings. We're going to be looking at Berkshire's top five holdings in this video, but it's worth remembering that this portfolio is actually 49 stocks long. So, these five businesses are not the be-all and end-all for Berkshire. Yes, they do actually account for 75% of the portfolio, but even still, it's not the be-all and end-all.

Secondly, remember when you're looking at the Berkshire portfolio that not all of the stocks in here are actually Buffet's. Of course, Ted and Todd also select stocks for Berkshire Hathaway, although I can guarantee you that the top five stocks are all Buffet picks. And then lastly, remember that because of Berkshire's size, they can really only invest in the world's largest companies to actually be able to invest enough to shift the needle for them. Thus, these five stocks, you know, certainly won't be the highest returning stocks you could possibly hold, but they are the best stocks for Berkshire Hathaway's position.

So, that's some context, but now let's get into the countdown.

So, coming in at position number five is American Express at 6.91% of the Berkshire portfolio. Buffett first bought a stake in American Express back in 1994, and he hasn't touched the position since 1998. Now, that sounds insane, but this actually isn't too uncommon for Buffett. You know, with his investment strategy, he's very much focused on buying great businesses and holding them for as long as he possibly can. And so far, he hasn't found a reason to sell his stake, so he hasn't.

Overall, Buffett paid 1.3 billion dollars to form the position, and it's a stake that today is worth about 20 billion dollars. So, what does American Express do well? I'm sure a lot of you guys are familiar with them. They are one of the world's big three card providers, alongside Visa and MasterCard, and they make money in a few different ways.

In Q3 2022, their biggest revenue chunk by far was their U.S. consumer credit card business, which are fees and interests collected on consumer cards in the U.S. Then followed by the commercial credit card business, again fees and interest, but for business cards. Then coming in third were all the fees from international credit cards, and then followed lastly by merchant fees, which are the fees merchants have to pay American Express to accept American Express cards.

However, if you actually factor in then the expenses related to each of these revenue segments and instead look at their pre-tax segment income, you do see a slightly different story. The actual income from merchants takes over a big chunk of the pie, and the income from international cards goes way down. So, that's how American Express makes their money.

Interestingly, if we turn over to Simply Wall Street, we can see that it currently trades at a much lower P/E than its peers, and Simply Wall Street's inbuilt discounted cash flow model shows a decent margin of safety. Again, no, that does not mean you go out and buy it, but it does mean that this could be a business that's worthy of additional research.

Speaking of additional research, I do want to thank Simply Wall Street for sponsoring this video. We actually just published a discover collection going into detail on each of these five stocks that we're discussing here in this video. So, if you wanted to actually do a little bit of digging on these five stocks, definitely go check out the link below, and you can explore everything from valuation, future growth projections, past performance, financial health, management, and a lot more.

Also, if you're interested in signing up, the links below will give you 40% off their subscription plans, so definitely check it out if you like. And as always, thank you to Simply Wall Street for sponsoring the channel.

All right, now moving on to Buffett's fourth largest holding, coming in at 7.57% of the portfolio, we have Coca-Cola. This is the classic Warren Buffett stock, and chances are you've probably seen him drinking the dark elixir of life at many points in time over the years. I think he actually drinks like five cans of Coke per day or something ridiculous like that. It's honestly crazy; I don't know how he does it.

But anyway, talking about the stock, Buffett first bought Coca-Cola back in 1988 after the sudden stock market crash of 1987 plunged Coca-Cola's stock price by about 25%. This was the first example of the, you know, the Buffett approach we all know and love today; the approach of yes, buying a wonderful business, but also buying one that has a big fat moat and buying it at a reasonable price.

Buffett then added to the position in 1989 and again in 1994, and as of 1995, Berkshire had invested 1.3 billion dollars total, and like his position in American Express, Buffett to this day still holds the shares, which are now worth over 22 billion dollars. And remember that doesn't even include dividends.

The thing I really take away from Buffett's investment in Coca-Cola is just how important moats are. That's the single biggest reason Buffett has never had to sell, and it's why the shares are worth so much today. Coca-Cola just has a massive brand moat. Buffett identified this back in 1988; you know, when people were presented with a whole range of different drinks, most people choose Coke. This fact has helped Coke steadily raise sales volumes and prices over time to keep their business growing to this day.

I mean, last year, Coke raised their prices a lot because of inflation, and which way did their sales go? They went up. Now, turning to Simply Wall Street, we can see that unlike American Express, Coca-Cola is sitting at an industry standard P/E of around 28 and does seem fully valued based on the discounted cash flow analysis. But nonetheless, Coca-Cola is a really interesting Buffett stock that is definitely worthy of some time and research.

Okay, now moving on to Buffett's third largest position heading into 2023, we have Chevron. Chevron is the seventh largest oil company in the world by revenue, and unlike American Express and Coke, is actually more of a recent addition to the Berkshire portfolio. Buffett started buying Chevron in Q3 of 2020, but notably in Q1 of 2022, he bought an additional 121 million shares, which at the time catapulted the company to Berkshire's fourth largest holding.

Now, I'm certainly no expert when it comes to oil stocks, but I think this one, you know, is quite simply Buffett just holding a high-quality business and just buying it at a fair price. I mean, Buffett said himself back in 2007, "If we're in an oil stock, it's because we think it offers a lot of value at this price." So, it does not mean that we think the price of oil is going up. If we thought oil was going up, we could just buy oil futures, which we actually did once. And that's really interesting because incidentally, what we've seen in the world since Buffett started buying both Chevron and Occidental is that the supply of oil has been constrained and the demand has risen, which has actually helped oil prices stay quite elevated over the last year or so.

But it's worth noting that the oil price movement is not the primary factor that entices Buffett to buy. He wants strong economics at the underlying business regardless of what oil prices are doing. It's also worth noting that out of these top five holdings, Chevron is actually, I would say, the least Buffett-like stock. And the reason I say that is because Chevron is not a strong moat company. At the end of the day, they produce a commodity, and their business performance and stock performance is very much dependent on the price of oil.

So, it doesn't fit a formula quite as perfectly as, say, an American Express or a Coca-Cola. But, you know, it's still a position that has worked out very well for Buffett so far, with the stock at all-time highs.

All right, now moving on to Buffett's second largest holding, we hit, yes, you know it, Bank of America. This is one of only two double-digit positions in the Berkshire portfolio, occupying 10.3%. So, Buffett first bought Bank of America stock back in 2011, but it became a regular top 10 holding after Q3 of 2017 when he exercised his stock warrants he acquired back in 2011, allowing him to buy 700 million shares of common stock at 7.14 cents per share.

Now today, that equity position has now swelled in size to over a billion shares, and the position is now worth 30 billion dollars. Now, I'm definitely a noob when it comes to bank stocks, definitely, but let me tell you one person that certainly isn't is Mr. Warren Buffett. And I think that's the biggest takeaway from this investment; you know, it's much more likely that you'll make a killing in the stock market if you stay within your circle of competence, and that's exactly how Buffett originally got into Bank of America.

As Reuters notes, Buffett began investing in Bank of America in 2011, purchasing five billion dollars of preferred stock plus warrants to buy 700 million common shares at a time that many investors were worried about the bank's capital needs. You know, at the time, many banks were still dealing with the aftermath of the financial crisis. Some were facing increased regulation; you know, investors weren't very optimistic.

But all too often, it's those dark times where everyone is worried you can actually find some really amazing long-term opportunities if you genuinely understand the business you're looking at and the industry that it falls in, and that was exactly the case with Buffett in the banks. Fast forward a decade, and Buffett has definitely come out on top.

And if banks maybe are your thing, then turning back to Simply Wall Street, we can see that their price-to-earnings ratio is marginally lower than their peers, but admittedly that is for lower earnings growth. And if we do turn to their DCF, Simply Wall Street's model seems to suggest that maybe the business is worthy of us doing a little bit more research.

And with that said, we finally get to stock number one. This will come as no surprise to you guys, but Warren Buffett's largest holding by a long way is Apple. As of right now, the stock takes up a massive 41% of the Berkshire Hathaway stock portfolio, literally four times bigger than the Bank of America holding.

This has to go down as one of Warren Buffett's best ever investments, maybe not by a percentage, but certainly by sheer dollar size of the return. And this is also a relatively recent position from Buffett as well. We're going back to Q1 2016 when Buffett first bought into Apple. He bought 39 million shares, but it was Q4 of 2016, then all of 2017, and the start of 2018 where he really sunk a lot of money into the company.

Across that time period, he bought about 950 million Apple shares at a total cost of around 36 billion dollars. And this is a classic example of Buffett buying a great business at a reasonable price because during that time period, Apple's P/E ratio hovered between 13 and 16, as investors were concerned that revenue growth had stalled and that Apple's iPhone had saturated the market.

But Buffett was able to absolutely cut through the noise, and what he found was that Apple's brand and switching moat was so strong that even if iPhone sales had hit a saturation point, there were still many other ways that Apple could grow their top and bottom line into the future. You know, even if iPhone sales just never grew again, even if it was just by raising their prices, Apple had a moat that gave them pricing power.

And with the stock trading at a reasonably low P/E for a big tech company, he bought all the stock that he could, and boy did it pay off. The original 36 billion investment has now snowballed to a value of 120 billion dollars. But interestingly, investors are once again getting a little bit nervous about Apple because, over the last 12 months, the stock has fallen about 30%.

So, it'll be interesting to see what Buffett does with the position this year. Although, turning to Simply Wall Street does look as though Apple has simply been pegged back to fair value from being very overvalued, so there is every chance that we could see just nothing at all.

So overall, guys, they are Warren Buffett's five biggest positions heading into 2023. Definitely let me know in the comments which one resonates best with your own investing style, and make sure you leave a like if you enjoyed the video; I would very much appreciate it. But apart from that, guys, thank you very much for watching, and we'll see you in the next video.