Several of the Oracle of Omaha’s longtime favorites would be at home in most investors’ portfolios.
He may be set to step down as head of Berkshire Hathaway (BRK.A -1.17%) (BRK.B -1.35%) at the end of this year, but most of the conglomerate’s stock holdings are still Warren Buffett’s picks. So if you’re looking for Buffett-approved ideas, Berkshire’s portfolio is still the place to find them. Here are three in particular that you may want to dive into before the end of this month.
1. American Express
After nearly two decades of slow and steady (and mostly unheralded) growth, but also due to the recent downsizing of its stake in Bank of America, American Express (AXP -0.38%) has become Berkshire Hathaway’s second-biggest holding. With 151.6 million shares, Berkshire owns about 22% of the credit card lender, and that $44.5 billion position makes up 16% of the value of Berkshire’s stock portfolio.
What’s so special about this seemingly ho-hum outfit that’s inspired Buffett to not only stick with it for this long, but allow it to become such a major piece of Berkshire’s portfolio?
It’s not nearly as surprising as it may seem at first glance.
See, while American Express is frequently lumped together with Visa and Mastercard (for obvious reasons), it’s not quite an apples-to-apples comparison. Its business could be better described as a marketing and rewards program that just happens to be centered around a card payments network. Its card holders are willing to pay as much as $700 per year for perks like credit toward streaming services, cash back on hotel stays, access to airport lounges, and other rewards.
This is a surprisingly well-protected business model. Although it wouldn’t be accurate to say that only affluent households hold Amex cards, the company certainly focuses on the higher-income crowd — a demographic that isn’t as adversely impacted by macroeconomic headwinds like the ones blowing now. For perspective, last quarter, the company’s total billed business grew 6% year over year, boosting its currency-adjusted revenue by 8%. Restaurant spending was particularly strong, growing 8%, and underscoring the argument that bigger spenders aren’t actually cutting back.
American Express is also one of the few outfits that hasn’t dialed back its full-year profit outlook. It’s still expecting revenue growth of between 8% and 10% to produce earnings per share of between $15 and $15.50. That would be up roughly 14% from last year’s earnings of $13.35 per share — better profit growth than most companies are expected to produce this year.
2. Capital One Financial
If American Express sits at one end of the consumerism continuum, Capital One Financial (COF -1.39%) occupies a space at the other. Although most people can qualify for a Capital One card, they’re well suited for people looking to build (or rebuild) their credit. Still, there’s plenty of demand for credit cards from the sections of the marketplace that it caters to, in addition to the piece of the business that Discover served before Capital One’s recently completed acquisition of it.
Don’t underestimate this pairing, either. Combined, those now-merged outfits could loosen the firm grip that industry titans Mastercard and Visa have had on the credit card payments network market for a long time now.
Image source: Getty Images.
See, it’s a mostly unrecognized nuance from the consumer perspective, but every credit card payment quietly involves several parties. Card issuers serve as the lenders to credit card-holding consumers, but those issuers also need a means of rapidly approving and processing payments for retailers and other merchants. Visa and Mastercard are the largest of the middleman outfits that provide those networks — and who collect small fees for every transaction. Capital One has long relied on them, as do all the other issuers of cards with the Mastercard and Visa logos. AmEx operates its own payment network (albeit a smaller one) for its branded cards, keeping everything in house.
Discover, however, is a lender that also runs a payments network of its own. Although it’s still small by comparison, together, Capital One and Discover have enough scale, leverage, and technical capabilities to serve many customers without the involvement of Visa or Mastercard.
There’s no way Buffett saw this merger coming back in early 2023 when Berkshire Hathaway first established what is now a 7.1 million share stake in Capital One worth about $1.3 billion. In fact, the conglomerate has actually trimmed its position in the financial services company a bit since early 2024.
It’s a Buffett holding nonetheless, however, and one that Goldman Sachs recently added to its so-called “conviction list” of tickers that it firmly believes are undervalued and worth owning.
3. Occidental Petroleum
Finally, add Occidental Petroleum (OXY -1.83%) to your list of Warren Buffett stocks to buy hand over fist this month.
Against the backdrop of renewable energy’s proliferation and growing efforts by governments, businesses, and individuals worldwide to reduce their use of fossil fuels, an oil and natural gas extractor like Occidental might not seem to be an obvious holding for a highly traditional and old-school stock picker like Buffett.
Yet despite the continued adoption of renewable energy sources, the world will still need more and more oil for a long time. Researchers at Goldman Sachs don’t believe we’ll reach “peak oil” — the point at which the average daily consumption of crude oil stops growing and starts shrinking — until 2034, in fact, and even beyond that point, we’ll need lots of it for several more decades. OPEC doesn’t believe crude consumption’s growth will peak until 2045 at the earliest, while oil giant ExxonMobil is forecasting that oil demand will peak in 2030, but also anticipates that in 2050, we’ll still need about the same amount of it that we do in 2030. And it expects that overall, in 25 years, oil and natural gas will still account for more than half of the global energy mix.
In other words, there’s still lots of good money to be made in the fossil fuel business by a low-cost operator like Occidental Petroleum.
To the extent the oil and natural gas industry business is living on borrowed time, though, Occidental is evolving brilliantly. The company’s carbon-capture technology (literally) sucks carbon dioxide out of the ambient air. The business just needs scale, which is being encouraged by incentives. That’s one of the chief reasons Precedence Research believes the global carbon capture market will grow at an annualized rate of more than 21% through 2034.
This stock hasn’t been a strong performer since late 2022. Indeed, it has lost nearly half its value since then. That’s only because oil prices have been in a slump since then, though, dragging the industry’s earnings down with it.
Buffett has been unfazed, however. Not only has he stuck with Occidental, he has added to Berkshire’s stake, growing it into a 264.9 million share position worth, at current share prices, about $13 billion. That’s nearly 6% of Berkshire’s stock portfolio and 27% of Occidental Petroleum’s entire float.