Business Insider gave a good breakdown of stocks that Warren Buffett owns at the end of 2009 and for some he have been holding for a long time and som el latest acquisitions.
A glance of this table will show that most of them have a wide economic moat, that will enable them to earn above average profits compare to competitors.
Another unique features that most of them have is that they have very valuable brands, which enables them to earn above average profits.
There hasn’t been a meaningful change in the number of shares Berkshire holds in Coke in well over a decade and yet it remains the top holding by market value in the insurer’s stock portfolio. Morningstar analyst Phil Gorham sees the company facing a dichotomy of prospects between emerging and developed markets, with the former offering the potential for strong growth as per capita income (and consumption) increases and the latter creating challenges as consumer tastes shift away from carbonated soft drinks. Having struggled to maintain positive relationships with key bottlers like Coca-Cola Enterprises (CCE), it was interesting to see Coke agree to buy CCE’s North American bottling operations this past week (a transaction Phil believes may have been prompted by PepsiCo’s (PEP) move to consolidate its own North American bottlers last year). Given all the flack Buffett gave Kraft during its pursuit of Cadbury (CBY) this past year, we were curious to see what he might say about this deal in his annual letter to shareholders, but it looks like we may have to wait for Buffett to weigh in on this transaction.
Wells Fargo (WFC)
Berkshire owns about the same dollar amount of Wells Fargo it did at the end of 2008, with the largely unchanged value a product of a modestly weaker stock price and an increased number of shares. Our analyst Jaime Peters thinks Wells Fargo is well-positioned after it took advantage of the credit crisis to expand its national footprint through the acquisition of Wachovia. With the merger on track and Wells Fargo starting to achieve some revenue synergies on top of the cost savings it was expecting from the deal, the acquisition is looking better every day. Jaime expects Wells Fargo to see a strong rebound in earnings during 2010 and believes that a dividend increase will likely occur before the year is out.
Burlington Northern (BNI)
This was perhaps the most exciting story in the Berkshire portfolio this past year, in part because the stock is now off the market. Berkshire increased its stake in Burlington Northern early in 2009, and then made a bid for the entire business in November of last year (with the deal closing in early February 2010). While the move prompted the selling of both Union Pacific and Norfolk Southern from the portfolio, Berkshire will not be lacking for exposure to the railroad industry. Morningstar analyst Keith Schoonmaker believes Burlington Northern is well-positioned to thrive as a wholly-owned subsidiary in the Berkshire community.
American Express (AXP)
American Express was the top performing stock among Berkshire’s top-10 holdings last year, with its share price doubling during 2009 (albeit only after taking a drubbing during the collapse of the financial markets in 2007-2008). Our analyst Michael Kon believes American Express’s credit quality is on the mend, as losses on bad loans have been declining steadily since last April. While this should allow the firm to once again focus on growth, he expects it will be difficult for American Express to see a return to pre-recession spending volumes until cardholders start using their cards more frequently than they are currently. That said, the trend of replacing cash and checks with electronic payments should provide the firm with a tailwind in the years ahead.
Proctor & Gamble (PG)
While Proctor & Gamble’s shares rallied with the markets last year, Berkshire was selling the stock in the fourth quarter of 2009. Given that Berkshire was gathering liquidity for the Burlington Northern transaction, and the insurer had been trimming positions in both Proctor & Gamble and Johnson & Johnson (JNJ) prior to the bear market to help fund other investment opportunities, we’re not going to read too much into this move. Morningstar analyst Lauren DeSanto believes that, despite a very challenging 2009, P&G remains focused on driving profitable market share growth in its categories. She expects new CEO Robert McDonald, who assumed the helm midway through last year, to continue to stress execution with retailers and customers, guiding P&G to operate like a smaller, more nimble company. Lauren thinks these initiatives, which augment increased brand investments and an improved new product pipeline, leave P&G well positioned coming into 2010.
Kraft Foods (KFT)
While Kraft is a relatively new addition to the portfolio, with Berkshire starting to build a stake in the packaged foods giant in 2007, it has been far from boring. Our analyst Erin Swanson thinks Kraft’s recent acquisition of Cadbury makes sense from a strategic perspective, but the integration of the global confectionery firm is not without risk. Beyond melding disparate corporate cultures, Cadbury’s public dismissal of Kraft’s business model and management team over the past several months increases the challenges of integration. The good news for Berkshire, though, is that Kraft consummated the deal without overly diluting its own shareholders (one of several points of contention Warren Buffett had with some of the moves Kraft was making in an attempt to get the deal done). Better yet, Erin believes that fourth-quarter and full-year results, which were aided by ongoing investments in product innovation and marketing support, have positioned Kraft to continue producing solid cash flows for shareholders.
Berkshire was buying more of this stock than it was any of its other top ten holdings during 2009, nearly doubling the number of shares in the Wal-Mart portfolio. Morningstar analyst Joel Bloomer believes the firm, with $400 billion-plus in annual revenue, not only dominates the U.S. retail landscape but is also growing quickly internationally. Wal-Mart has been redirecting capital spending from the U.S. to faster growing parts of the world, like Latin America and China. The firm’s fiscal 2010 results benefitted from this commitment to international growth, which more than offset consumer trade down and mild deflation in the U.S. With the international segment contributing 25% of Wal-Mart’s total revenue, Joel anticipates more of the same over the next few years.
Wesco Financial (WSC)
Wesco is the majority-owned affiliate of Berkshire Hathaway headed by Buffet’s long-time partner Charlie Munger. The firm has developed significant reinsurance operations, but also folds in Berkshire-like operating subsidiaries such as furniture rental and steel servicing businesses. We think Wesco has garnered a narrow moat largely through the financial strength of its insurance operations, which is derived from a high level of capital, underwriting ability, and investment success. Given how well its investment portfolio has performed in recent years, the firm’s financial strength has only improved on a relative basis, further cementing its market position. Wesco’s respect in the marketplace and its position in the Berkshire umbrella help attract quality reinsurance business at good prices.
Conoco Phillips (COP)
Oops. We’re all human and this looks like it could be Berkshire’s biggest error in recent memory. Buffett acknowledged as much in his letter to shareholders last year, when he apologized for the poor timing involved in building a stake in this firm (which occurred just as oil and gas prices started to collapse in the second half of 2008). Berkshire has spent the last year and a half unwinding this position, and even started selling a big chunk of its stake in ExxonMobil during the fourth quarter (which the insurer only started building in the third quarter of last year). Bad or unlucky timing wasn’t unique to Berkshire regarding ConocoPhillips in recent years, as our analyst Allen Good notes the firm has made aggressive capital investments itself (including acquisitions) at inflated prices in recent years. He believes that while ConocoPhillips is leveraged to natural gas production and refining in the U.S.–and, as such, dependent on a recovery in natural gas prices and refining margins–management is taking steps to improve returns even if a recovery does not transpire. The company is also in the process of divesting $10 billion of underperforming and non-strategic assets, with the proceeds going towards debt reduction.
Johnson & Johnson (JNJ)
Rounding out the top-10 holdings is the only stock on the list currently trading at a 5-Star price. Berkshire’s stake in Johnson & Johnson has ebbed and flowed over the years, with the company likely trimming its stake in the fourth quarter of last year to help raise funds for its purchase of Burlington Northern. Morningstar analyst Damien Conover likes the firm’s reliable, and significant, long-term growth prospects. Having already gone though a majority of its own patent expirations, Johnson & Johnson is not being as severely impacted by the patent expiration shock currently affecting the rest of the pharmaceutical industry. With the company in the midst of launching four new potentially blockbuster drugs, and the firm maintaining brand and quality leadership in medical devices and consumer products, Damien feels that Johnson & Johnson is well-positioned for long-term growth.
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