63% of Warren Buffett's $388 Billion Portfolio Is Invested in These 3 Magnificent Stocks

Among Wall Street's billionaire money managers, the affably named "Oracle of Omaha" is in a class of his own.

Since becoming the CEO of Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) in 1965, Warren Buffett has overseen an aggregate return in his company's class A shares (BRK.A) of better than 4,940,000%, as of the closing bell on June 13. For the sake of comparison, the benchmark S&P 500 is nearing a total return, including dividends paid, of 36,000% since Buffett took the reins. When you outpace the most widely followed index by this much, you're going to draw attention.

Arguably no form 13F filing is more anticipated each quarter than that of Berkshire Hathaway. A 13F provides a detailed look at what Wall Street's brightest investment minds have been buying, selling, and holding, and is a required filing for institutions and money managers with at least $100 million in assets under management. In the March-ended quarter, Berkshire held 44 stocks and two exchange-traded funds.

Warren Buffett surrounded by people at Berkshire Hathaway's annual shareholder meeting.
Warren Buffett surrounded by people at Berkshire Hathaway's annual shareholder meeting.

Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.

While this might sound like a well-diversified portfolio, that couldn't be further from the truth. Buffett and his top investment aides, Todd Combs and Ted Weschler, oversee a highly concentrated portfolio. Berkshire's investment gurus strongly believe in putting a lot of capital to work in their top ideas -- and it absolutely shows.

As of the closing bell on June 13, 63% ($243.4 billion) of the $388 billion portfolio Warren Buffett oversees at Berkshire Hathaway was invested in three magnificent stocks.

Apple: $169,114,296,728 (43.5% of invested assets)

As has been the case for some time now, tech stock Apple (NASDAQ: AAPL) accounts for an otherworldly percentage of the invested assets Warren Buffett oversees at Berkshire. Even after selling nearly 116.2 million shares of Apple during the first quarter for tax purposes, the recent rally in its shares has increased its weighting in Berkshire's investment portfolio to almost 44%.

There look to be three key reasons Buffett favors Apple and has referred to it as "a better business than any we own."

The first catalyst has everything to do with consumer behavior. Buffett has freely admitted that he doesn't understand the first thing about how an iPhone works, but he does have a good bead on consumer behavior.

Apple has an exceptionally loyal following that's seemingly always eager to buy its products. Since introducing a 5G-capable version of its iPhone during the fourth quarter of 2020, the company has maintained a 50% or greater share of the domestic smartphone market.

Secondly, Buffett and his team likely appreciate the innovation and leadership that CEO Tim Cook has brought to the table. Beyond just the evolution of Apple's physical products (the iPhone, Mac, iPad, and Apple Watch), Cook is spearheading a multiyear transition that's seen the company pivot to higher-margin subscription services.

Last week, at Apple's annual developer conference, the company unveiled an assortment of new artificial intelligence (AI) features that can allow it to get a piece of the multitrillion-dollar AI pie. These new features can help refresh the functionality of Apple's key product lines.

The third selling point on Apple for Warren Buffett is its world-leading capital-return program. On top of returning $15 billion to shareholders via dividends on an annual basis, the company has repurchased $674 billion of its common stock since the start of 2013. By simply sitting on his proverbial hands, Buffett has seen Berkshire's stake in Apple grow over time thanks to these aggressive buybacks.

A bank employee shaking hands with two prospective clients in an office.
A bank employee shaking hands with two prospective clients in an office.

Image source: Getty Images.

Bank of America: $40,549,769,756 (10.4% of invested assets)

The second magnificent stock that makes up a sizable percentage of Berkshire Hathaway's $388 billion investment portfolio is none other than money-center behemoth Bank of America (NYSE: BAC). The over 1 billion shares of BofA owned by Buffett's company equates to a market value of more than $40 billion.

There's not a sector of the market Warren Buffett loves more than financials, and there's a very simple reason why. I like to call it the "numbers game."

Buffett and his team are well aware that economic downturns and recessions are a normal part of the long-term economic cycle. But rather than foolishly (lowercase 'f') trying to time when these downturns will arise, Buffett, Combs, and Weschler have packed Berkshire's portfolio with cyclical businesses that can take advantage of long-winded expansions (i.e., the numbers game). Extended periods of economic growth allow bank stocks to grow their loan portfolios and reap the rewards of interest income.

Speaking of interest income, no money-center bank is more sensitive to changes in interest rates than Bank of America. With the Federal Reserve undertaking its most-aggressive rate-hiking cycle since the early 1980s, it's BofA that's seen its net-interest income climb more than any other money-center bank. As long as core inflation remains stubbornly high (looking at you, shelter expenses!), Bank of America should benefit from the Fed's current wait-and-see approach.

A lesser-known catalyst that's been making waves for BofA is its investment in digitization. As of the end of March, digital banking adoption among households rose to 76%, up 6 percentage points from the comparable period in 2021. Meanwhile, 50% of consumer loans were completed online or via mobile app. Digital banking transactions are considerably cheaper for Bank of America than in-person or phone-based interactions and should provide a lift to its operating efficiency.

Bank of America also offers a robust capital-return program when the U.S. economy is healthy. Berkshire is collecting nearly $1 billion in annual dividend income from its stake in BofA.

American Express: $33,686,381,433 (8.7% of invested assets)

The third magnificent stock that, collectively with Apple and Bank of America, accounts for 63% of the $388 billion investment portfolio Warren Buffett puts to work at Berkshire Hathaway is credit-services goliath American Express (NYSE: AXP). AmEx has been a continuous holding by Buffett's company since 1991.

The bull thesis for AmEx, much like BofA, revolves around the business being cyclical. Out of the 12 U.S. recessions since the end of World War II, nine have resolved in less than a year, and none of the remaining three surpassed 18 months in duration.

Comparatively, a majority of expansions have stuck around for multiple years, with two periods of growth hitting the 10-year mark. Companies that depend on growth in consumer and enterprise spending, like AmEx, benefit immensely from this disparity between recessions and expansions (the "numbers game" in action).

One of the top reasons American Express has been such a phenomenal investment for so many decades is its willingness to take part in both sides of a transaction. It's currently the No. 3 payment processor by credit-card network purchase volume in the U.S. (the top market globally for consumption). This allows the company to generate predictable merchant fees in any economic climate.

But American Express is also a lender. It has the ability to generate annual fees and interest income from its cardholders. Although this does expose the company to the possibility of credit delinquencies and loan losses during recessions, these downturns, as noted, are short-lived.

To add to this point, American Express has historically done a fantastic job of attracting higher-income cardholders. Well-to-do cardholders are less likely than the average American to alter their purchasing habits or fail to pay their bills during periods of economic uncertainty.

Last but not least, American Express has become quite the income stock for Warren Buffett. Based on Berkshire Hathaway's $8.49-per-share cost basis for AmEx, the $2.80 it's paying out in annual dividends per share works out to a yield on cost of 33%!

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Bank of America and American Express are advertising partners of The Ascent, a Motley Fool company. Sean Williams has positions in Bank of America. The Motley Fool has positions in and recommends Apple, Bank of America, and Berkshire Hathaway. The Motley Fool has a disclosure policy.