With Berkshire Hathaway recently releasing their annual report, Warren Buffett mentions that their performance in 2012 was “subpar” even though they have a growing book value of $24.1 billion and a stock portfolio consisting of 41 companies worth $75.3 billion.
In the most recent letter to Berkshire Hathaway shareholders, Warren Buffett said that ownership interest in the top four companies American Express, Coca-Cola, IBM and Wells Fargo will likely increase at some point in the future. At the end of the year, the total unrealized gain was worth $26.7 billion. From all of these shares mentioned, Berkshire Hathaway gained a total of $1.1 billion in dividends. Here’s a link to the complete Berkshire Hathaway shareholder letter.
Since they are heavily investing in DaVita Healthcare Partner, the behavior of Berkshire Hathaway shows investors they believe that the healthcare provider of kidney dialysis services will continue to grow in Europe and the United States throughout 2013. The company has recently added many shares of DVA to the Berkshire Hathaway portfolio – and as of February 27, 2013, they currently hold 14,808,959 shares.
Here’s a brief review of the top four companies mentioned in the annual letter to shareholders written by Warren Buffett: AXP, KO, IBM and WFC.
Wells Fargo & Co. is Warren Buffett and Berkshire Hathaway’s number one holding. They consist of about 20% of their overall portfolio, and they currently have 439,857,861 shares of the financial institution.
The large banking institution Wells Fargo & Company is in service to one out of every 3 households in the United States of America, as well as 35 other countries. Buffett often speaks very highly of the fantastic management of this bank. It is ranked fourth in assets out of all the banks, but it currently ranks first in market value of its common stock out of all banks in the United States. This is one of the fastest recovering banks during the industry implosion that took place a few years back. The management of Wells Fargo was responsible for turning around the bank just several years ago.
During the past, Warren Buffett has mentioned the bank’s low cost of funding, which is a powerful advantage when it comes to lending. Wells Fargo & Co. is a company incorporated under the laws of Delaware. They are a financial holding company, as well as a bank holding company and they are registered under the Bank Holding Company Act of 1956. The market cap of Wells Fargo & Co. is $187.38 billion. Its shares currently trade near $35.50, they have a P/E ratio of 10.6, and their P/S ratio is 2.2. The dividend yield of the company’s stock is 2.6%. They also possess an annual average earnings growth of 1.5% over the last 10 years.
In a previous annual letter, Warren Buffett commented, “the banking industry is back on its feet, and Wells Fargo is prospering. It’s earnings are strong, its assets solid and its capital at record levels.”
Coca-Cola is Warren Buffett and Berkshire Hathaway’s number two holding at the time of this writing. They consist of about 19.3% of the Berkshire Hathaway portfolio, and the company currently owns 400 million shares.
Coca-Cola is a worldwide brand and a company that is known for its carbonated beverages, and also known for its juices and tea drinks. Seventy five percent of the revenue generated by this company is from countries outside of the United States. The Coca-Cola brand is famous in almost every country in the world, and this includes Africa.
The company is considered to be very healthy, and it is consistently growing. The annual Coca-Cola earnings over the last 10 years have been 9.6% consistently. The soda manufacturer has a market cap of $172.16 billion. At the time of this writing, the shares traded at $38.63. The current P/E ratio is 19.6, and the P/S ratio is 3.7. Coca-Cola’s current dividend yield is 2.6%. They received a business predictability rank of five stars from GuruFocus. Buffett said that he was late to the Coca-Cola party, and he commented on the longevity of the brand at one time. He bought his shares in 1988 along with shares of Freddie Mac. At the time, Buffett said this in regards to his new purchases:
“In 1988 we made major purchases of Federal Home Loan Mortgage Pfd. (“Freddie Mac”) and Coca-Cola. We expect to hold the securities for a long time. In fact, when we own portions of outstanding businesses with outstanding management, our favorite holding period is forever. We are just opposite of those who hurry to sell and book profits when companies perform well but who tenaciously hang onto businesses that disappoint. Peter Lynch aptly likens such behavior to cutting the flowers and watering the weeds.”
International Business Machines Corp. (IBM) is the number three Berkshire Hathaway holding. They currently consist of 17.3% of the Berkshire Hathaway portfolio, and number 68,115,484 shares.
It is widely known that Warren Buffett has praised the leadership of IBM. They rescued this company from the brink of bankruptcy 20 years ago and turned it into the successful company that it is today. In the last annual letter written by Warren Buffett, he mentioned that IBM management has created extraordinary operational accomplishments, saying, “Their financial management was equally brilliant, particularly in recent years as the company’s financial flexibility improved. Indeed, I can think of no major company that has had better financial management, a skill that has materially increased the gains enjoyed by IBM shareholders.”
IBM was incorporated in New York on June 16, 1911 under the name Computing–Tabulating–Recording Co. International Business Machines Corp. has a market capitalization of $227.92 billion. At the time of this writing, the shares traded at $204.5 per share. The current P/E ratio is 14.1, and the P/S ratio is 2.2. The IBM dividend yield for company stock is 1.7%. Over the last 10 years, International Business Machines Corp. has had an annual average earnings growth of 12.1%. GuruFocus has rated IBM with the business predictability rank of five stars.
American Express Co. (AXP) is the number four holding in the Berkshire Hathaway portfolio. They currently make up 11.6% of the portfolio, and Berkshire Hathaway owns 151,610,700 shares.
American Express Company is another Warren Buffett favorite. In an effort to create an entire value chain, the company segmented its credit card lending business into three separate businesses: international card and global commercial services, US card services and global network and merchant services. As the owner of the entire chain of value, AXP has created a very profitable niche for itself throughout the financial service market. This presents a tremendous potential for profits. Being it has a very closed loop of its own related services and products, as well as marketing, the pricing of American Express has a competitive advantage already built-in.
American Express Company was originally founded in 1850 as a joint stock association. They incorporated in 1965 as a New York Corporation. The American Express market cap is $69.06 billion. It shares currently trade at $62.5. The P/E ratio is 16, and the P/S ratio is 2.3. The stocks dividend yield is 1.3%, and the American Express Company has seen an average earnings growth of 5% over the last 10 years. GuruFocus has given American Express a business predictability rank of 3.5 stars.
Berkshire Hathaway is drawn to the fair value computation of American Express, and they are a stock currently undervalued with lots of room to grow. In addition, they have a nice dividend. American Express presents a nice opportunity for many investors and according to the recent shareholder letter from Warren Buffett, he will probably be adding to this position in the near future.