1 Unstoppable Stock Set to Join Nvidia, Microsoft, Apple, Amazon, Alphabet, and Meta in the $1 Trillion Club
The U.S. economy has a century-long track record of producing the world's most valuable companies:
United States Steel became the world's first $1 billion company in 1901.
By 1955, General Motors became the first $10 billion company.
Industrial giant General Electric rode its portfolio of businesses -- from aerospace to financial services -- to a $100 billion valuation in 1995.
Apple (NASDAQ: AAPL) crossed the next big threshold in 2018 when it became the first publicly traded company to amass a $1 trillion market capitalization.
Today, Apple is joined by Microsoft, Amazon, Alphabet, Meta Platforms, and Nvidia in the trillion-dollar club. But I think one more company is on the cusp of earning membership.
Warren Buffett has led Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) to a whopping 4,384,748% return since 1965, giving it a valuation of nearly $900 billion. The conglomerate owns substantial positions in private and public success stories like GEICO, Coca-Cola, and even Apple.
Here's why Berkshire could become the first non-technology company in the U.S. to join the $1 trillion club within the next 12 months.
Image source: The Motley Fool.
A master class in keeping it simple
Buffett is a quintessential value investor. He likes to buy good businesses at a cheap price, and sometimes great businesses at a fair price, with the intention of holding on to them for decades. He looks for companies with steady growth, consistent profitability, and strong management teams. He especially likes businesses that return money to shareholders through dividends and stock buybacks.
Here's an example that perfectly displays the effects of compounding that helped Buffett build his empire. Berkshire spent $1.3 billion accumulating shares of American Express (NYSE: AXP) between 1991 and 1995. That holding has grown in value to a staggering $36.8 billion today. Even better, Amex stock makes Berkshire money just for owning it, paying Berkshire $364 million in dividends in 2023 alone. That dividend means Berkshire recoups its entire initial investment in Amex every four years just from the dividends. That's just one of the conglomerate's many success stories.
Berkshire owns a long list of high-quality companies
Berkshire was originally a textiles business, and it was on the verge of failure when Buffett stepped in to buy it in 1965. When he realized he couldn't turn it around, he transformed it into a holding company for various investments.
Since then, Berkshire has purchased many companies outright, including GEICO, Duracell, and Dairy Queen. But it also owns a portfolio of 47 publicly traded stocks and securities worth $377.9 billion. This portfolio includes its shares of Amex, Coca-Cola, and Apple.
Apple is Berkshire's single largest holding, with a value of $149.9 billion accounting for 39.7% of its stock portfolio. It would be even larger, but the conglomerate recently sold 13% of its position (reportedly for tax reasons). Considering Berkshire only spent around $38 billion accumulating Apple shares since 2016, this investment has seriously paid off.
I want to take a moment to highlight the Coca-Cola stake, too. Berkshire spent $1.3 billion buying shares of the beverage giant between 1988 and 1994, and it has never sold any of them. Today, that position is worth $25.2 billion, and it paid Berkshire $736 million in dividends in 2023 alone.
You might notice the Coca-Cola story sounds very similar to the Amex story, and its is. What it points out is that Buffett didn't catch lightning in a bottle, nor is his strategy exceptional. In fact, Berkshire's long-term positions in Bank of America, Visa, and Moody's followed a similar trajectory, thanks to Buffett's simple formula centered around patient investing.
If investors are willing to maintain a long-term view, they can also reap the benefits of compounding in the same way.
Berkshire's market-beating returns are supported by strong financial growth
Berkshire Class A shares soared in value by 4,384,748% between 1965 and 2023. That translates into a compound annual return of 19.8%, which is nearly twice the 10.2% average annual return in the benchmark S&P 500 index.
The outperformance is mind-boggling in dollar terms. An investment of $1,000 in Berkshire stock in 1965 would have been worth $43.8 million at the end of 2023! The same investment in the S&P 500 would be worth just $312,230.
Berkshire has the financial results to support its incredible returns. The business generated $49.3 million in revenue during 1965, a figure which grew to $364.4 billion last year. Berkshire's diverse portfolio of businesses contributed to the latter number: $83.4 billion came from insurance premiums; $101.4 billion came from its railroad, utilities, and energy businesses; and $155.6 billion came from sales and services across the various entities under Berkshire's umbrella.
Berkshire also grew its net earnings from just $2.3 million in 1965 to a whopping $96.2 billion in 2023.
Berkshire could join the $1 trillion club within a year
Considering Berkshire has a market capitalization of nearly $900 billion as of this writing, its stock only needs to gain 11% from here to catapult the company into the $1 trillion club. Its 58-year-long track record of delivering 19.8% annual returns (on average) suggests it's a shoo-in to get there within the next 12 months.
A few things will work in Berkshire's favor going forward. For starters, Apple just announced a $100 billion stock buyback, which is the largest in the history of corporate America. That will organically increase the conglomerate's equity stake in the iPhone maker. Plus, top holdings like Apple, American Express, and Coca-Cola continue to raise their dividends, so Berkshire will likely earn a record payout this year.
The U.S. Federal Reserve is also likely to cut interest rates in the second half of 2024. That could spark an increase in economic activity which should boost many of the businesses in Berkshire's portfolio, especially those serving consumers and those in the transport and logistics industries.
Finally, Buffett continues to be a big believer in the company's future. He authorized the repurchase of $9.2 billion worth of Berkshire's shares in 2023 and a further $2.6 billion in the first quarter of 2024. Buffett has now overseen $71.4 billion worth of share repurchases since 2020 alone, which is more than he has deployed into any other stock.
Absent any external economic shocks, Berkshire appears almost certain to be the first non-technology company in the U.S. to join the $1 trillion club in the coming year.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. American Express is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Bank of America, Berkshire Hathaway, Meta Platforms, Microsoft, Moody's, Nvidia, and Visa. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors, long January 2026 $395 calls on Microsoft, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
