In 2022, Warren Buffett has been all over the headlines. Whether it’s Apple, Occidental Petroleum, or Chevron, the Oracle of Omaha has added millions of shares to his portfolio, which is now worth over $300 billion.
This year’s bear market decline has allowed Buffett to buy shares at a significant discount, including those of his favorite stock — Berkshire Hathaway (BRK.A).
Buffett has been shopping aggressively in 2022
Since 1965, as the CEO of Berkshire Hathaway, he has delivered a 20.1% average annual return for his company’s Class A shares.
Decade after decade, Buffett continues to outperform the major stock indexes. There are several reasons for this. One, he has an astute acumen for buying wide moat businesses and two, he invests heavily in dividend stocks.
Unlike most, who succumb to panic when markets fall, he views these pullbacks as a buying opportunity, and 2022 is no exception. So what has he been buying?
Throughout the first two quarters of 2022, Berkshire invested heavily in Apple. In Q2 alone, the company bought nearly 4 million shares. The tech giant now accounts for over 40% of Berkshire’s portfolio. His ideology is that “it’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
Another area of interest for Buffett this year has been energy stocks — primarily Occidental Petroleum (OXY) and Chevron (CVX). Between the pandemic and Russia’s invasion of Ukraine, the current oil and gas supply is unlikely to increase for years. If that’s the case, crude oil and natural gas prices will remain elevated.
In the energy sector, Buffett also sees long-term opportunities in Occidental’s transition toward the potential $3 trillion to $5 trillion global carbon capture and storage (CCS) market.
While these stocks are popular choices for Buffett this year, none are as favored as much as his own Berkshire Hathaway.
Buffett’s “favorite” stock
Before July 2018, specific criteria prevented Buffett and Berkshire’s executive vice chairman, Charles Munger, from freely repurchasing their company’s Class A and Class B common stock shares.
For example, shares had to be valued at or below 120% of book value. On July 17, 2018, that all changed. As long as Berkshire has $30 billion in cash, cash equivalents, and U.S. Treasuries on its balance sheet, the company could freely buy back shares without any limitations.
Since these new buyback rules began, Buffett and Munger have repurchased $62.1 billion of Berkshire Hathaway’s Class A and Class B common stock.
Berkshire’s portfolio is stacked
Over the past four years, buying back tens of billions worth of Berkshire proves Buffett is willing to bet on his own firm, more so than on Apple, his largest holding.
While recessions are inevitable, periods of economic expansion last significantly longer. So when the time comes, Berkshire’s portfolio is well-positioned to benefit from these expansion periods.
Under the Berkshire hood lies even more gems than most are aware of. For example, when Berkshire acquired insurer General Re for $22 billion back in 1998, which also controlled specialty investment firm New England Asset Management (NEAM), Buffett became the “owner” of NEAM’s portfolio. 95% of this firm’s assets are in two sectors — technology and financials.
Like Buffett, NEAM also purchased millions of Chevron shares. Another big buy was HP. NEAM purchased over 16.3 million shares of the personal computing (PC) and printing solutions company in Q2 2022.
Although diversification is generally regarded as a smart strategy, Buffett’s methodology proves exceptions to the rule exist. Indeed, a lack of diversification is one of the main reasons Berkshire has been so successful. In Buffett’s eyes, diversification is only necessary if you don’t know what you’re doing. As of late August 2022, just ten stocks accounted for over 86% of Buffett’s massive portfolio.
Is it time to follow Buffett and buy shares of Berkshire?
When Buffett invests in a company, he looks for optimal value. Some crucial variables are solid financials and margins, a strong moat, and excellent management. His strategy has paid off over the years, resulting in a greater than 3,600,000% return in his company’s Class A shares since 1965.
Even during the worst of times, Buffet’s company sits on a massive cash pile and is built to weather years like this one. Shares of Berkshire Class B are down nearly 8% year to date. However, Berkshire’s portfolio will almost certainly bounce back once the bear market subsides. Berkshire’s history and sound financials are precisely what Buffett looks for in an investment. It’s a great long-term buy that will increase in value.
So, the verdict?
If you’ve been waiting to buy into one of the largest companies in the world and most coveted stocks, it’s starting to look very attractive now. Based on our calculations, Berkshire has 44.3% upside to $608,000 in Class A shares, and around $405 per share in Class B shares.