Warren Buffett is one of the most successful investors of all time. This is a fact that’s undisputed, making his stock picks among the most watched in the investing community.
Buffett’s Berkshire Hathaway (NYSE: BRK.B) is perhaps the most intriguing conglomerate on the planet. Now a holding company for Buffett’s investments, Berkshire’s former status as a New England textiles maker has been long forgotten (and notably one of Buffett’s self-proclaimed worst investments, but that’s a whole other story).
These three stocks are ones I think best exemplify some of Buffett’s wisest moves in recent history. Let’s dive in and see if they’re good fits for your portfolio.
Any list of top Warren Buffett stocks has to include Apple (NASDAQ: AAPL). The world’s largest company by market value, and Buffett’s largest holding (making up 39% of his portfolio), Apple remains the centerpiece of the Berkshire Hathaway portfolio.
Indeed, Apple’s dominance in Berkshire’s portfolio highlights Buffett’s belief in big bets. Buffett’s previous commentary on diversification is notable. He said, “Diversification is protection against ignorance. It makes little sense if you know what you are doing.” His bet on Apple speaks to this maxim loudly.
While Buffett has trimmed his position in Apple from time to time, he’s mostly been in adding mode since initiating his position in 2016. In fact, he’s been noted as saying that he would have bought more in 2022 had Apple stock not rebounded so nicely. That’s a good position to be in — to hope that your largest position provides a better entry point so you can buy more.
Ultimately, Apple’s dominant market position in the U.S. smartphone market, and its valuable closed-loop ecosystem supported by a very loyal customer base, provide the kind of durable competitive advantage Buffett is looking for. While Apple stock isn’t cheap, trading at about 25 times trailing earnings, it’s the company’s quality that Buffett is so clearly enamored of. The idea that buying a great company at a reasonable price is better than buying a reasonable company at a great price is on full display with Buffett’s continued faith in Apple.
A rather controversial pick to put on this list, Taiwan Semiconductor (NYSE: TSM) is a company many may argue Buffett and his investing team doesn’t really love. That’s because after adding a significant $4.1 billion position this past fall, Buffett has since trimmed his position, big time. As of Berkshire’s most recent 13-F filing, Buffett’s stake in the world’s largest semiconductor company by revenue has dwindled to a “meager” $617 million.
That said, I think it’s worth exploring what led Buffett and his team to take this position in the first place.
Taiwan Semi’s dominant market share in chip manufacturing makes this company one that’s about as sensitive to fluctuations in the global economy as any out there. But for Buffett, a forever bull on the future of America (and by extension the world), investing in a cyclical name when it’s been beaten down is the right choice.
Now, ongoing geopolitical concerns about China are no joke. It’s also unclear whether Buffett initiated this position on his own, or if one of his two lieutenants did so unilaterally. Indeed, perhaps Buffett’s recent sale of TSM stock indicates he believes the rewards of owning this stock long-term aren’t worth the near-term risks. That’s something investors need to consider.
That said, for those taking a bullish stance on the long-term growth of the global economy, this is a stock to keep on the watch list now.
One of the most prescient investments Buffett has made in recent history has to be Occidental Petroleum (NYSE: OXY). Indeed, the history of Buffett’s investments in Occidental are worth a deep dive on their own. But the broad strokes are as follows.
Essentially, Buffett’s first foray into Occidental came via a preferred share purchase in the spring of 2019, when Berkshire invested $10 billion in cumulative preferred stock, paying an 8% yield. This capital injection was tied to Occidental’s acquisition of Anadarko Petroleum, which turned into a bidding war at the time. As a result of this transaction, Buffett received 80 million warrants (now 83.9 million) which could be converted into OXY stock at any point over the coming eight years, at an exercise price of $59.62 per share.
With the stock now trading around this amount, it’s unclear whether Occidental will use its buyback program to reacquire these preferred shares. However, Buffett has since beefed up his stake in Occidental, purchasing more than 194 million shares of common stock (worth roughly $12.2 billion) since early 2022. An earlier position in Occidental stock that was built in 2019 was subsequently sold in early 2022 at the onset of the pandemic.
When Buffett stared rebuying Occidental stock, the shares were trading at about $46. Thus, despite Occidental trading well below its 52-week high of $77.13 per share (below $60 at the time of writing), it’s been very profitable for Buffett thus far, and remains the Oracle of Omaha’s seventh-largest position.
For those eager to have a portfolio hedge against commodity inflation, or who simply want to rake in an impressive dividend yield while waiting out what could be a turbulent economic period, following in Buffett’s footsteps with Occidental Petroleum certainly seems like a solid bet.
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Chris MacDonald has positions in Apple and Berkshire Hathaway. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.