Warren Buffett and Charlie Munger have made their fortune by their top buy-and-hold ideas. They are not new, fancy, or sexy ideas, but very simple. Charlie Munger even mentioned that both of them had a habit, whenever a new investment idea come, they would do the comparison to see whether that new idea was much better than existing positions in the portfolio. If not, they would pass and stick to their existing positions. Here are their top three positions:
Coca-Cola (NYSE: KO) takes the lead with 20.1% of Berkshire Hathaway’s (NYSE:BRK-A) (NYSE: BRK-B) portfolio. Berkshire Hathaway owns 8.9% of the world’s largest beverage company, with a value of $14.9 billion. Warren Buffett loves it because of its global market leader position, predictability, and excellent historical growth. Coca-Cola currently owns 49.9% of the global market share, more than its closet rival Pepsi’s 29.9%, and the third global player’s 16.9%. In the last 10 years, Coca-Cola has experienced annualized growth in both revenue (9%) and EPS (11.55%). Although Coca-Cola is large, with the total market capitalization of $167 billion; it still has a lot of room for growth. Currently the majority of unit cases sold were in the US, accounting for 21%, whereas China was only 8%. India and Russia each had 2%. As in “2020 vision,” in the next 5 years, the company committed to investing $30 billion in emerging markets around the world and to double its $100 billion revenue by 2020. Currently Coca-Cola is trading at 19.5x P/E and 5x P/B. In addition, it is paying 2.7% dividend yield.
Wells Fargo (NYSE: WFC) is the second largest holding in Warren Buffett’s portfolio. It seems to be the bank that he loves the most. Buffett first invested into the bank during the banking crisis relating to real estate loans. At that time, the majority of the Wells Fargo’s loans were exposed to real estate. Everybody was panicked, and continued to sell off all bank shares. In 1989, he jumped in and initiated the position in the bank. At that time, Wells Fargo delivered a return on equity of 20% and sold in the market at only 5x earnings. In the recent quarter, he added more Wells Fargo to Berkshire Hathaway’s portfolio. Buffett's stake in Wells-Fargo is worth $13.9 billion, accounting for around 19.4% of his total portfolio. Currently, most of Wells Fargo’s loans are in real estate 1-4 first mortgages, accounting for 21% of its total assets. The large residential mortgage loan would benefit the bank because of the current gradual improvement in the residential mortgage environment. In addition, Wells-Fargo has the highest net interest margin in the industry, 3.66%. Citigroup ranks the second with 2.8%, whereas BAC's and JP Morgan's are at 2.21% and 2.43% respectively. The market is valuing Wells-Fargo at 10.2x P/E and 1.2x P/B.
International Business Machines (NYSE: IBM) is the first biggest bet of Berkshire Hathaway in the technology field. Warren Buffett just recently bought IBM at the reasonable earnings valuation of 13.5x and 9x P/B. At that time, IBM delivered nearly a 70% return on equity and paid 1.6% dividend yield. Berkshire Hathaway currently owns more than 67.5 million IBM’s shares, with the total value of nearly $12.8 billion, accounting for 18.6% of his total portfolio. Buffett said he bought the stock after reading recent IBM’s annual report. He was amazed with IBM’s moat in supplying technology solutions to businesses. In his analysis, he cared about what the companies were doing and what they planed to be doing in the future, how tied they were with suppliers and the level of stickiness. Warren Buffett said he likes IBM because it laid out where wanted to go, and it went there. Buffett commented: “They have laid out a road map and I should have paid more attention to it five years ago where they were going to go in five years ending in 2010. Now they've laid out another road map for 2015. They've done an incredible job." Currently, IBM is trading at $189.20 per share with the total market capitalization of $213.78 billion. The market is valuing the company at 13.7x P/E and 10x P/E. It is paying investors a 1.7% dividend yield.
My Foolish Take
Indeed, all of those three businesses above are recession-proof. They have long traditions and strong legacies with global recognition. In addition, they are paying investors sustainable and decent dividend yields. Investors would be better off holding those three stocks for their lifetime portfolios. These are true buy and holds.