Move Over, Apple: Berkshire Hathaway Is on Track to Have a New No. 1 Holding Following Warren Buffett's Retirement
But Apple is also no longer the bargain it once was. When Berkshire's billionaire boss began buying shares of Apple in early 2016, it was trading at 10 to 15 times trailing 12-month EPS. As of the closing bell on Feb. 19, Apple was sporting a trailing 12-month price-to-earnings ratio of approximately 33. Given the weakness in its physical device sales from fiscal 2022 through fiscal 2024, this is a historically pricey valuation.
With new CEO Greg Abel sharing Buffett's hardline stance on getting a good deal, there's a high likelihood that Berkshire's Apple stake will be further pared down in 2026.
Make way for Berkshire's soon-to-be new No. 1 position: American Express
With shares of Apple being sold on a regular basis, it's potentially opening the door for credit-services behemoth American Express(NYSE: AXP) to ascend to the top spot.
When the closing bell tolled on Feb. 19, Apple accounted for $59.39 billion of Berkshire's invested assets, while Amex, as American Express is more commonly known, totaled $51.95 billion of invested assets. Less than three years ago, Apple's stake in Berkshire's portfolio was six times larger than Amex ($151.3 billion vs. $24.7 billion, as of April 16, 2023).
Unlike Apple, neither the retired Buffett nor successor Abel has had any desire to sell shares of American Express. One of the Oracle of Omaha's last letters to shareholders highlighted eight stocks he viewed as "indefinite" holdings. This included Coca-Cola, Occidental Petroleum, all five Japanese trading houses, and American Express. The simple fact that Amex's 151,610,700-share position in Berkshire's investment portfolio isn't being touched gives it a good shot at eclipsing Apple in market value this year.
American Express is also benefiting from the resilient U.S. economy. Periods of growth last significantly longer than recessions, thereby allowing Amex to grow in lockstep with the U.S. economy.
Looking beyond macro themes, Amex's ability to double-dip on both sides of the transaction counter makes it an exceptionally strong company. On the one hand, it's the No. 3 payment processor by credit card network purchase volume in the U.S. On top of earning fees from merchants with each transaction, American Express is a lender that generates interest income and annual fee revenue from its personal and business cardholders.
Furthermore, Amex has always had a knack for attracting affluent clientele as cardholders. The well-to-do are less likely than average-income individuals to alter their buying habits or to fail to pay their bills during periods of economic turbulence. In theory, this should allow Amex to bounce back from recessions faster than most of its peers.
To round things out, Amex's dividend incentivizes Abel and his team to continue holding. Since shares of American Express have been continuously held by Berkshire Hathaway for the last 35 years, the company's cost basis for these shares is a minuscule $8.49/share. With Amex paying $3.28 per share annually in dividends, Berkshire's yield on cost is nearing 39%. In other words, the trillion-dollar company Buffett helped build is doubling its initial $1.3 billion investment in Amex solely from dividend income in less than three years.
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Bank of America is an advertising partner of Motley Fool Money. American Express is an advertising partner of Motley Fool Money. Sean Williams has positions in Bank of America. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
Move Over, Apple: Berkshire Hathaway Is on Track to Have a New No. 1 Holding Following Warren Buffett's Retirement was originally published by The Motley Fool
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