It may seem improbable that a $24.1 billion year-over-year profit would be called “subpar,” but that is exactly what Warren Buffett lamented in his 2012 annual Berkshire Hathaway Inc. (NYSE:BRK.A) shareholder letter dated March 1, 2013.
Berkshire Hathaway returned 14% last year compared to the 16% gain logged by the Standard & Poor’s 500 Index. Berkshire’s mushrooming portfolio and mammoth size is making it difficult to keep up with the market, something Buffett has warned about in the past.
In addition, Berkshire’s cash stash, some $47 billion at the end of 2012, sat idle. While Buffett had been on the prowl for a sizeable acquisition last year, nothing met the investment guru’s discerning criteria. However, early this year Berkshire agreed to buy H.J. Heinz for $23.4 billion with Brazilian buyout firm 3G Capital. Buffett and his astute team of money managers continue to look for deals. “Charlie (Vice Chairman Charlie Munger) and I have again donned our safari outfits and resumed our search for elephants,” Buffett recently said.
Even after the Heinz deal, there is plenty left in Berkshire’s bank account for several noteworthy deals and stock purchases.
Berkshire's shareholder letter revealed some notable increases to its portfolio positions, including increasing its stake in American Express Company (NYSE:AXP), The Coca-Cola Company (NYSE:KO), International Business Machines Corp. (NYSE:IBM) and Wells Fargo & Co (NYSE:WFC). Buffett said he plans to boost his stake further in the four companies.
Here’s why Buffett likes the bunch and why you should too.
American Express is a buy for growth and value. The credit card company that targets affluent members emerged from the Great Recession with solid returns. In the past four of the last five quarters AXP posted earnings that beat expectations. A longtime holding of Buffett’s, American Express cardholders tend to make larger purchases and pay them off on time, leaving AXP less vulnerable to credit card default. With a P/E of roughly 16, AXP shares look less expensive than rivals Mastercard, with a P/E of 23, and Visa, with a P/E of 72. As the economy continues to recover, look for AXP to benefit.
Coca-Cola has been and remains a mainstay in Berkshire Hathaway's portfolio. Buffett admits to downing five cans of Cherry Coke daily. Coke’s business is one that is easy to understand, a priority for Buffett. In addition, it has a great product, another must for Buffett. Coke is one of the most recognizable brands in the world. The Atlanta-based company continues to diversify, adding a bevy of beverages to whet ever-changing palates. Coke has given shareholders a sugar rush for more than 51 years thanks to its more than half century record of raising dividends. Shares yield a sweet 2.89%.
International Business Machines Corp. (NYSE:IBM) is the second largest U.S. firm in terms of number of employees, the fourth largest in terms of market cap, the ninth most profitable, and the 19th largest in terms of revenue, according to the latest ranking by Fortune. Globally, the company sits at the No. 31 spot in terms of revenue. The Armonk, NY based company plans to spend about $20 billion on acquisitions by 2015, and will spend roughly $35 billion on research and development. Those moves will keep International Business Machines Corp. (NYSE:IBM) a cutting edge company and cement its position as a worldwide technology and consulting leader.