Warren Buffett (Trades, Portfolio) is widely regarded as one of the greatest investors of all time. Between 1965 and 2022, his business conglomerate and investment vehicle, Berkshire Hathaway (BRK.A)(BRK.B), achieved an annualized gain of 19.8% per year, more than double the S&P 500’s annualized gain of 9.9% over the same time frame. What’s even more impressive is that Berkshire has still been achieving great returns even though its stock portfolio is worth nearly $300 billion, as per its latest 13F report.
While most value investors are familiar with Buffett already, fewer may recognize the name Baillie Gifford (Trades, Portfolio), even though some of the investment firm’s funds have outperformed Berkshire by a long shot over the past few decades. The U.K.-based institutional fund manager, known for its rigorous fundamental analysis and global diversification, has a very different business structure than Berkshire, so trying to compare the returns of the two outright is like trying to compare apples to oranges. However, we can get pretty close to a fair comparison by looking at Baillie Gifford (Trades, Portfolio)’s 13F holdings. Over the past decade, the value of the firm’s 13F holdings has grown an average of 19.7% per year.
Investors should be aware 13F reports do not provide a complete picture of a guru’s holdings. They include only a snapshot of long equity positions in U.S.-listed stocks and American depository receipts as of the quarter’s end. They do not include short positions, non-ADR international holdings or other types of securities. However, even this limited filing can provide valuable information.
Both Berkshire Hathaway and Baillie Gifford (Trades, Portfolio) pursue long-term strategies that are a combination of value, growth and in-depth research, and while their holdings are different for the most part, they do have a handful in common. Interestingly, out of their eight common holdings, five of them have GuruFocus business predictability ratings of at least four out of five stars: Apple Inc. (AAPL, Financial), Johnson & Johnson (JNJ, Financial), Floor & Decor Holdings Inc. (FND, Financial), United Parcel Service Inc. (UPS, Financial) and Amazon.com Inc. (AMZN, Financial). Such high business predictability ratings are rare as they are awarded only to companies that have demonstrated consistently high revenue and Ebitda growth for at least a decade.
Apple
With a business predictability rating of five out of five stars, Apple (AAPL, Financial) is the top holding in Berkshire’s portfolio by a long shot, taking up 38.90% of the equity portfolio space. Baillie Gifford (Trades, Portfolio) also owns shares of the consumer electronics maker, though the holding only takes up 0.08% of its equity portfolio.
The services segment is shaping up to be a major component of Apple’s growth strategy as the company strives to keep up with consumer preferences and bring in new sources of income. Services provide sources of recurring revenue and help maintain customer share of mind, thus reinforcing Apple’s brand image and helping cross-sell products. In addition, Apple is increasingly investing in producing its own semiconductors rather than buying them from others, which could help differentiate its offerings and reduce costs in the long term.
Johnson & Johnson
Consumer health care and pharmaceutical giant Johnson & Johnson (JNJ, Financial) has a business predictability rating of four out of five stars. Buffett’s firm holds 327,100 shares of the company as of its latest 13F filing, while Baillie Gifford (Trades, Portfolio) owns just 108 shares. It is clear the holding is not a high conviction pick for either of these gurus.
Johnson & Johnson is one of the rare companies that has earned the Dividend King status, meaning it has raised its dividend in at least 50 consecutive years. The stability provided by its wide range of products and geographies means the company would have to do something extraordinary to move the needle to any great degree, which is both good and bad. Despite the solid dividend and recession-resistant nature of this company, some investors are tepid on it because Covid-related revenues will likely decline.
Floor & Decor Holdings
Flooring retailer Floor & Decor Holdings (FND, Financial) has a business predictability ranking of five out of five stars, which is particularly impressive for a retailer. In the first quarter of 2022, Berkshire increased its holding in the stock by 466.55% for a total holding of 4,780,000 shares. Baillie Gifford (Trades, Portfolio) initiated a new holding in Floor & Decor worth 30,696 shares in the fourth quarter of 2022.
By focusing on just one business niche, hard flooring, Floor & Decor has been able to steadily gain market share from the big home improvement retail giants, Home Depot (HD, Financial) and Lowe’s (LOW, Financial). Its greater variety of flooring options has also helped give it an edge over smaller flooring retailers. The company may face some near-term headwinds from the housing market slowdown, but long-term demand should be easily sustainable due to the housing shortage in the U.S.
United Parcel Service
United Parcel Service (UPS, Financial) earns a business predictability ranking of four out of five stars. The shipping and logistics company is a 59,400-share holding in Berkshire’s portfolio, which is fairly minimal by Berkshire’s standards. Baillie Gifford (Trades, Portfolio) owns a larger position of 781,474 shares.
UPS has a lot going for it as the biggest package delivery company and one of the top shipping and logistics companies in the world. While its home market in the U.S., it serves more than 220 countries and territories around the globe. It is tough to shake a business like this once it has built out its logistics network, as new competitors cannot hope to operate at comparable profit margins anytime soon. The company is also committed to paying and raising its dividend, which yields 3.28% as of this writing.
Amazon.com
E-commerce and cloud computing giant Amazon.com (AMZN, Financial) has a business predictability rank of four and a half out of five stars. Buffett’s firm first bought shares of the company in the first quarter of 2019 and has a holding worth 10,666,000 shares as of its latest 13F. Meanwhile, Baillie Gifford (Trades, Portfolio) owns 37,833,641 shares, which gives Amazon a 3.31% weight in its equity portfolio and makes it the firm’s fifth-largest 13F holding.
Amazon’s low-margin e-commerce business has been struggling with ongoing high inflation, though when inflation eventually cools off, the company will likely still maintain its dominant market position due to its stable balance sheet and superior logistics network. The company’s cloud computing business, Amazon Web Services, is growing much faster than the e-commerce business these days. Amazon has also expanded into health care with its acquisition of online-focused primary care provider One Medical.
