As we head into 2024, investors are examining their portfolios to determine how their investments performed in 2023. Investing legend Warren Buffett (Trades, Portfolio) is no exception.
Although inflation, interest rates and geopolitical conflicts continued to create uncertainty around the world, the S&P 500 Index's performance showed great improvement compared to 2022. It returned 24.73%, bolstered by a strong performance in the industrials sector as well as financial services, real estate, energy and technology.
While the CEO of Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) has managed to find value opportunities recently with new positions in Atlanta Braves Holdings Inc. (BATRK, Financial), Sirius XM Holdings Inc. (SIRI, Financial) and Liberty Live Group (LLYVA, Financial), as well as an increased bet on Occidental Petroleum Corp. (OXY, Financial), several of its largest holdings still underperformed the benchmark index last year.
According to 13F filings, the guru's $313.26 billion equity portfolio consisted of 45 stocks as of Sept. 30, 2023. A majority of the portfolio was invested in technology stocks at 52.05%, while the financial services sector had a weight of 22% and the consumer defensive space represented 11.37%.
Investors should be aware 3F filings do not give a complete picture of a firm's holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.
As of the end of the third quarter, filings show Buffett's five largest holdings, accounting for over half of the equity portfolio, were Apple Inc. (AAPL, Financial), Bank of America Corp. (BAC, Financial), American Express Co. (AXP, Financial), Coca-Cola Co. (KO, Financial) and Chevron Corp. (CVX, Financial).
Of these, only Apple and American Express outperformed the S&P 500 last year. Let's take a closer look to see what impacted the two companies.
Apple
Driven by the hype surrounding artificial intelligence and an overall recovery in the tech sector, Apple (AAPL, Financial), one of the Magnificent Seven, gained 42.88% last year.
Regardless, the GF Value Line suggests the stock is fairly valued currently based on historical ratios, past financial performance and analysts' future earnings projections.
The well-known electronics manufacturer based in Cupertino, California, whose products include the iPhone, Mac and iPad, has a $2.82 trillion market cap; its shares were trading around $184.34 on Monday with a price-earnings ratio of 29.60, a price-book ratio of 45.33 and a price-sales ratio of 7.48.
While the stock had a better year in comparison to 2022, when it slid 27.68%, the company recorded four straight quarters of declining revenue as a result of a slowdown in sales for phones and computers. It was also hurt by not releasing new iPad models as the older versions have seen weak demand.
Regardless, the company remains a juggernaut in the tech space, recording $383 billion in total revenue and nearly $97 billion in net income for its fiscal year. Ebitda came in at $129.20 billion.
As of the end of its fiscal fourth quarter, the company had $61.55 billion in cash, cash equivalents and marketable securities and $111.08 billion in debt. Although the company has been issuing new long-term debt over the past two years, it remains at an acceptable level. The low cash-to-debt ratio of 0.55, however, is of concern.
Apple is further supported by a predictability rank of five out of five stars, a robust Altman Z-Score of 8 and a Piotroski F-Score of 7 out of 9, indicating it is in good standing currently.
The company also has a high GF Score of 96 out of 100, driven by solid ratings for growth, profitability, financial strength and momentum as well as a more moderate value rank. This means Apple has high outperformance potential going forward.
Representing 50.04% of the equity portfolio, Apple is Buffett's largest holding. GuruFocus estimates he has gained 341.11% on the investment since establishing it in the first quarter of 2016.
American Express
Despite a brief scare in the financial sector in March that sent stocks tumbling, American Express (AXP, Financial) shares climbed 27.45% in 2023, outperforming the index for the third year in a row as its card members continued to increase their spending. In comparison, the shares retreated 13.84% in 2022.
Regardless of the strong overall performance, however, the stock is modestly undervalued currently, according to the GF Value Line, as the shares did see periods of sharp decline throughout the year.
The credit card company, which is headquartered in New York, has a market cap of $137.78 billion; its shares were trading around $187.93 on Monday with a price-earnings ratio of 17.74, a price-book ratio of 5.04 and a price-sales ratio of 2.40.
Along with its multiyear outperformance, American Express has recorded six consecutive quarters of revenue growth, driven by strong consumer spending volumes. For the third quarter of the year, the company posted $15.34 billion in revenue and $2.45 billion in net income.
It also had $43.83 billion in cash, cash equivalents and marketable securities and $48.06 billion in debt on its balance sheet. As such, the cash-to-debt ratio of 0.91 indicates the company is unable to pay off its debt even though it is outperforming more than 60% of its competitors.
American Express is also supported by a five-star predictability rank and a Piotroski F-Score of 5, meaning its operations are stable.
Further, the company has a GF Score of 85, indicating it has good outperformance potential. It raked in high ratings for growth, value and momentum, while the profitability and financial strength ranks are more moderate.
As Buffett's third-largest holding, American Express represents 7.22% of the equity portfolio. According to GuruFocus, he has gained an estimated 1,141.15% on the investment to date.
Performance of other top holdings
The three other stocks that make up Buffett's top five holdings did not have as great of a year.
While Bank of America (BAC, Financial) posted a gain of 2.36%, a notable improvement from -30.71% in 2022, the bank crisis that occurred in March had lingering effects on banks of all sizes for the remainder of the year. As such, it still underperformed the benchmark.
Following a strong performance a year ago, Coca-Cola (KO, Financial) saw a reversal in fortune, recording a -5.96% return for 2023. The company has been impacted by higher interest rates, which has resulted in rising costs and price hikes. Investors are also concerned about the possible negative impact weight loss drugs will have on sales.
As for Chevron (CVX, Financial), the oil and gas giant continues to experience volatility as a result of increased geopolitical conflict and operational setbacks. Further, the company's $53 billion acquisition of Hess Corp. (HES, Financial) is facing intense scrutiny. Having recorded a nearly 43% gain in 2022, the stock fell from grace last year, posting a return of -16.72% even as the overall sector was higher.
Final remarks
While some of these companies saw a huge reversal in their fortunes in 2023, others have continued to outperform despite the challenges. Regardless, Buffett has stayed the course, betting on their strong business fundamentals and competitive advantages. Let's hope 2024 sees them all succeed.
