If any investor has stood the test of time, it is Warren Buffett. For years, the “Oracle of Omaha” has had a rock-star-like presence in the investing world. His annual Berkshire Hathaway shareholders meeting draws literally thousands of loyal fans who are investors. Known for his long buy-and-hold strategies and his massive portfolio of public and private holdings, Buffett remains one of the preeminent investors in the entire world.
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One reason for Berkshire Hathaway’s stunning success over the years is that Buffett and his close associate, Charlie Munger, have always tried to stay with stock ideas they understand, and that has proven to be a winning hand. In addition, many of the companies in their portfolio pay solid and reliable dividends.
Long-time investors and Buffett mavens are familiar with his quote that “His favorite holding for an S&P 500 stock is forever.” So, it is not really surprising to report that, for all the success and stature Berkshire Hathaway has in the investment world, just five top companies make up almost 75% of the fund’s total holdings. While much more concentrated than most portfolio managers would ever consider, the strategy has worked for Berkshire Hathaway investors for years, and it likely will into the future.
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All five of these stocks are rated Buy, and all pay reliable dividends. However, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
American Express
This stock has backed up recently and is offering the best entry point since late last year, despite posting solid quarterly results. American Express Co. (NYSE: AXP | AXP Price Prediction) provides charge and credit payment card products and travel-related services worldwide. Its products and services include payment and financing products network services accounts payable expense management products and services, and travel and lifestyle services.
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The company’s products and services also comprise merchant acquisition and processing, servicing and settlement, point-of-sale marketing and information products and services for merchants, and fraud prevention services, as well as the design and operation of customer loyalty programs. It sells its products and services to consumers, small businesses, midsized companies and large corporations through mobile and online applications, third-party vendors and business partners, direct mail, telephone, in-house sales teams and direct response advertising.
Shareholders receive a 1.20% dividend. Morgan Stanley has a $186 price target on American Express stock. The consensus target is $187.05, and shares closed trading on Wednesday at $175.91.
Apple
This legacy technology giant makes up a stunning 40% of the Berkshire Hathaway portfolio. Apple Inc. (NASDAQ: AAPL) designs, manufactures and markets consumer electronics and computers, and it has developed its own proprietary iOS and Mac OS X operating systems and related software platform/ecosystem.
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Revenues are principally derived from the iPhone line of smartphones, the Macintosh family of notebook and desktop computers, iPad tablets, iPod portable digital music players, and the Apple Watch. The company also realizes revenue from software, peripherals, digital media and services. The technology giant consistently has churned out new products that the public loves, and an inexpensive iPhone was a recent offering.
Apple stock investors receive a 0.62% dividend. Cowen’s $195 price target is well above the $168.21 consensus target and the most recent close at $145.31.
Bank of America
The company posted solid fourth-quarter results, and Buffett owns a stunning 1.1 billion of its shares. Bank of America Corp. (NYSE: BAC) is a ubiquitous presence in the United States, providing various banking and financial products and services for individual consumers, small and middle-market businesses, institutional investors, corporations and governments in the United States and internationally. It operates 5,100 banking centers, 16,300 ATMs, call centers and online and mobile banking platforms.
Bank of America has expanded into several new U.S. markets, with scale across the country positioning it ideally to benefit from accelerating loan growth over the next two years. Moreover, unlike smaller peers, scale allows the bank to increase investment substantially over the next few years without notably jeopardizing returns, driving further market share gains.
The dividend yield is 2.57%. The target price at Oppenheimer is $53, and Bank of America stock has a $34.21 consensus target. The shares closed on Wednesday at $34.14.
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Chevron
This integrated giant is a safer way for investors looking to get positioned in the energy sector, and its shares have backed up nicely. Chevron Corp. (NYSE: CVX) engages in integrated energy and chemicals operations worldwide.
Chevron’s Upstream segment is involved in the exploration, development, production and transportation of crude oil and natural gas; processing, liquefaction, transportation and regasification associated with liquefied natural gas (LNG); transportation of crude oil through pipelines; and transportation, storage and marketing of natural gas, as well as operating a gas-to-liquids plant.
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The Downstream segment engages in refining crude oil into petroleum products; marketing crude oil, refined products and lubricants; manufacturing and marketing of renewable fuels; transporting crude oil and refined products by pipeline, marine vessel, motor equipment and rail car; and manufacturing and marketing of commodity petrochemicals, plastics for industrial uses, and fuel and lubricant additives. It is also involved in cash management and debt financing activities, insurance operations, real estate activities and technology businesses.
The company posted strong fourth-quarter results, and it remains one of the best ways to play energy safely.
Chevron stock comes with a 3.71% dividend. The $212 Raymond James target price compares with a $193.70 consensus target and Wednesday’s close at $162.05.
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Coca-Cola
This remains a top Buffet holding, as he owns a massive 400 million shares. Coca-Cola Co. (NYSE: KO) is the world’s largest beverage company, refreshing consumers with more than 500 sparkling and still brands. It has an incredibly strong worldwide brand, with 40% overseas sales.
The company’s portfolio features 20 billion-dollar brands including Diet Coke, Fanta, Sprite, Coca-Cola Zero, vitaminwater, Powerade, Minute Maid, Simply, Georgia and Del Valle. Globally, it is the number one provider of sparkling beverages, ready-to-drink coffees and juices and juice drinks.
Through the world’s largest beverage distribution system, consumers in more than 200 countries enjoy Coca-Cola beverages at a rate of more than 1.9 billion servings a day. Also remember that the company also owns 16.7% of Monster Beverage, which continues to deliver big numbers.
Investors receive a 3.09% dividend. UBS has set its target price at $70. The consensus target is $68.64, and Coca-Cola stock closed at $58.86 on Wednesday.
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Given Buffet’s proclivity for only owning the stock of companies that he understands inside and out, these five make sense now for growth and income investors worried about the potential for a steep market decline. While they could sell off in a large correction, they will hold up far better than most.
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