Berkshire Hathaway‘s (NYSE:BRK.A) (NYSE:BRK.B) annual report is always chock-full of insights and witticisms from one of the world’s greatest investors, Warren Buffett. The 2023 annual report, released last Saturday, is no exception and is well worth a read.
One part of the report that stood out discussed three stocks in particular that Buffett said “leave us comfortable.” Two are long-time holdings, Coca-Cola (NYSE:KO) and American Express (NYSE:AXP), and the third is a relative newcomer to Berkshire, Occidental Petroleum (NYSE:OXY).
Coca-Cola and American Express: Old reliables
Buffett and Berkshire Hathaway have held Coca-Cola and American Express longer than any other current investment in the portfolio. The firm has held Coca-Cola since 1988, while American Express is the second-oldest position, held since 1993.
They are also two of Buffett’s four largest positions. American Express is the third-largest holding in the company’s $370 billion stock portfolio, representing about 8.9% of it. Coca-Cola is the fourth-largest among the 50 or so stocks in Berkshire Hathaway’s portfolio, representing about 6.5% as of Dec. 31.
“American Express began operations in 1850, and Coca-Cola was launched in an Atlanta drug store in 1886. (Berkshire is not big on newcomers.),” Buffett wrote in the annual letter. “Both companies tried expanding into unrelated areas over the years and both found little success in these attempts. In the past — but definitely not now — both were even mismanaged. But each was hugely successful in its base business, reshaped here and there as conditions called for. And, crucially, their products ‘traveled.’ Both Coke and AMEX became recognizable names worldwide as did their core products, and the consumption of liquids and the need for unquestioned financial trust are timeless essentials of our world.”
Buffett said both of these companies rewarded Berkshire’s “inaction” this past year by increasing their earnings and dividends. American Express returned 29% in 2023. Since Buffett added it in January 1993, the stock has returned about 12% on an annualized basis and roughly 14% including the dividend as of Feb. 27. Meanwhile, the S&P 500 has an annualized return of about 10.3% including dividends since then.
Coca-Cola was down 4% in 2023, but since 1988, it has returned 9.2% on an annualized basis and about 12% including dividends, while the S&P 500’s annualized total return is 10.3% since then. Thus, both have beaten the benchmark since Buffett added them to Berkshire’s portfolio.
“The lesson from Coke and AMEX? When you find a truly wonderful business, stick with it. Patience pays, and one wonderful business can offset the many mediocre decisions that are inevitable,” Buffett concluded.
Occidental: A relative newcomer
A third stock that Buffett called out as “comfortable” is Occidental Petroleum. Unlike the other two, this one has only been in the Berkshire Hathaway portfolio since 2019, but Buffett has been aggressively growing his stake in the company. In December, Berkshire bought another 5.2 million shares in the stock, and in early February, the firm bought another 4.3 million shares, boosting its stake in the company to more than 28%.
Occidental is now the sixth-largest holding in Berkshire’s portfolio, accounting for 4.1% of total assets.
Buffett said in the annual letter that he has no interest in purchasing or managing the company, as he fully supports the current ownership. However, he certainly likes investing in it.
“We particularly like its vast oil and gas holdings in the United States, as well as its leadership in carbon-capture initiatives, though the economic feasibility of this technique has yet to be proven. Both of these activities are very much in our country’s interest,” Buffett wrote.
The Berkshire chief added that since shale extraction, or “shale economics,” became feasible in 2011, the country’s energy dependency effectively ended. The U.S. is now producing 13 million barrels of oil equivalent per day (BOEPD), up from 5 million in 2007. Additionally, Occidental’s annual oil production is close to that of the nation’s Strategic Petroleum Reserve (SPR).
“Under Vicki Hollub’s leadership, Occidental is doing the right things for both its country and its owners. No one knows what oil prices will do over the next month, year, or decade. But Vicki does know how to separate oil from rock, and that’s an uncommon talent, valuable to her shareholders and to her country,” Buffet wrote.
Buffett described these stocks as holdings he expects to “maintain indefinitely,” so don’t expect to see them sold off anytime soon.
