Warren Buffett is one of the few investors who has managed to consistently outperform the S&P 500 due to his ability to pick quality stocks.
Warren Buffett, also known as the Oracle of Omaha, is among the most renowned investors on Wall Street. Buffett owns Berkshire Hathaway (NYSE: BRK.B), a large-cap company that has exposure to several publicly listed stocks.
Warren Buffett's holdings have consistently outpaced the returns of the S&P 500 index over the last several decades. For example, in the last year, the S&P 500 index is down over 11% compared to the 3.35% gains of Berkshire's equity portfolio.
In the previous three years, Berkshire's equity returns have doubled and are up 158% since July 2017. Comparatively, the S&P 500 index has returned 35% and 69% in the last three and five-year periods, respectively.
Given the outsized performance, it makes sense to take a closer look at the top holdings of Berkshire Hathaway in 2022. At the end of Q1 of 2022, Berkshire Hathaway had exposure to 49 stocks, according to SEC filings.
Apple
One of the largest companies in the world, Apple (NASDAQ: AAPL) accounts for 42.8% of Berkshire's total holdings. Apple remains reliant on the iPhone as the smartphone generates most of its revenue and cash flows.
However, the tech giant has introduced several subscription-based products and services over the years, including Apple Care, Apple Music, Apple TV+, and Apple Arcade. Down 19% from all-time highs, long-term investors can view the pullback as a buying opportunity.
Bank of America
Bank of America (NYSE: BAC) accounts for 11.5% of Berkshire's portfolio, and the banking heavyweight has returned close to 400% to investors in the last decade. In Q2, the company reported its fourth straight quarter of operating leverage. Its revenue rose by 6% while expenses were up 1.5%, allowing Bank of America to report a net income of $6.2 billion or $0.73 per share.
Due to ongoing macro-economic challenges, Bank of America's balance sheet narrowed by $127 billion to $3.1 trillion on the back of an $88 billion decline in deposits.
American Express
Another financial services company part of Warren Buffett's portfolio is American Express (NYSE: AXP). The credit card company has been one of the most profitable investments for Berkshire Hathaway and accounts for 7.8% of the total portfolio.
American Express generates a majority of revenue from transaction fees and is well poised to benefit from rising commodity prices. However, record inflation numbers might also dent consumer spending and increase default rates, acting as headwinds for American Express.
Chevron
The fourth largest holding of Berkshire Hathaway is Chevron (NYSE: CVX), an integrated energy company. While growth stocks are struggling, energy companies have easily outperformed the broader markets in 2022 due to rising oil prices.
Chevron shares are up almost 58% since July 2021 and offer investors a tasty dividend yield of 3.93%. While the company reported a net loss of $5.5 billion in 2020, its earnings stood at $15.6 billion in 2021. In Q1, its profits were $6.5 billion or $3.36 per share.
Chevron is part of a cyclical sector, but a diversified revenue base has allowed the company to increase dividends for 35 consecutive years.
Coca-Cola
A Warren Buffett favorite, Coca-Cola (NYSE: KO) accounts for 6.8% of Berkshire's equity portfolio. The blue-chip stock is a solid bet amid rising inflation rates. In Q1, Coca-Cola increased sales by 16% to $10.5 billion, and its bottom line expanded by 16% to $0.64 per share. Additionally, the beverage behemoth's operating margin widened to 32.5%, compared to 30.2% in the year-ago quarter.
Coca-Cola enjoys pricing power and is one of the most popular brands globally. Its profit margins are healthy as the company can quickly transfer rising raw material costs to consumers.
The bottom line
Warren Buffett has placed bets on blue-chip stocks and market leaders. However, most of these gains since 2017 can be attributed to Apple, Berkshire's largest holding. In recent months, the Oracle of Omaha has also increased exposure to the energy sector as oil prices remain elevated.
