In this article, we discuss the 10 stocks to watch in the portfolio of Warren Buffett. If you want to skip our detailed analysis of these stocks, go directly to Warren Buffett’s Picks: 5 Stocks to Watch.
Warren Buffett is famous in the finance world for his legendary value investing strategies. The long-term stock picks of the billionaire, whose personal net worth exceeds $100 billion, have averaged over 20% in annual returns over more than five decades, a feat unmatched in the modern stock market era. The portfolio value of his hedge fund, Berkshire Hathaway, was over $293.4 billion at the end of September 2021, up $400 million from $293 billion at the end of June.
Between June and September, Berkshire Hathaway made new purchases in 2 stocks, additional purchases in 1, sold out of 3, and reduced holdings in seven equities. Some of the top stocks in the portfolio of Berkshire Hathaway at the end of the third quarter of 2021 included Visa Inc. (NYSE:V), Apple Inc. (NASDAQ:AAPL), and General Motors Company (NYSE:GM), among others discussed in detail below.
Our Methodology
These were picked keeping in mind the third quarter investment portfolio of Berkshire Hathaway. Data from the historical portfolio was used to understand the reasoning behind the stock purchase.
The hedge fund sentiment around each stock was calculated using the data of 867 hedge funds tracked by Insider Monkey.
Warren Buffett’s Picks: 10 Stocks to Watch
10. Bristol-Myers Squibb Company (NYSE:BMY)
Number of Hedge Fund Holders: 74
Bristol-Myers Squibb Company (NYSE:BMY) is a New York-based biopharma firm.
Bristol-Myers Squibb Company (NYSE:BMY) is a relatively new holding of Berkshire, with the fund having purchased a stake in the firm in the third quarter of 2020. It has since reduced that stake, worth $1.3 billion at the end of the third quarter of 2021, in three of the last four quarters.
At the end of the third quarter of 2021, 74 hedge funds in the database of Insider Monkey held stakes worth $4.7 billion in Bristol-Myers Squibb Company (NYSE:BMY), up from 73 in the preceding quarter worth $5.2 billion.
In addition to Visa Inc. (NYSE:V), Apple Inc. (NASDAQ:AAPL), and General Motors Company (NYSE:GM), Bristol-Myers Squibb Company (NYSE:BMY) is one of the stocks that elite investors are buying.
In its Q4 2020 investor letter, Wedgewood Partners, an asset management firm, highlighted a few stocks and Bristol-Myers Squibb Company (NYSE:BMY) was one of them. Here is what the fund said:
“Bristol-Myers Squibb recently reported accelerating sales as much of the medical services industry returned to work. The Company continues to expect double-digit earnings growth over the next few years, driven by existing drugs, in addition to a broad pipeline of new drugs and indications. While the market remains fixated on a couple of patent expirations that could occur over the next several years, we think this is well-known at this point, yet the market still undervalues a couple of key acquisitions the Company has made in the past few years, particularly Celgene, which was acquired for a song.”
9. AbbVie Inc. (NYSE:ABBV)
Number of Hedge Fund Holders: 81
AbbVie Inc. (NYSE:ABBV) makes and sells pharmaceutical products. AbbVie Inc. (NYSE:ABBV) is also a new holding of the portfolio, compared to the long-term investing philosophy of the hedge fund. 13F filings show that Berkshire purchased a stake worth $1.8 billion in the pharma firm back in late 2020. It has since, with the exception of one quarter, steadily reduced that stake, which was valued at $1.5 billion at the end of September 2021.
At the end of the third quarter of 2021, 81 hedge funds in the database of Insider Monkey held stakes worth $4.1 billion in AbbVie Inc. (NYSE:ABBV), down from 82 in the preceding quarter worth $5.3 billion.
8. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 242
The fund led by Buffett first bought a stake in Amazon.com, Inc. (NASDAQ:AMZN) during the first quarter of 2021. It then added to it in the next quarter, before trimming it slightly early 2020. At the end of the third quarter of 2021, this holding was worth $1.75 billion.
Among the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in Amazon.com, Inc. (NASDAQ:AMZN) with 3.9 million shares worth more than $12.8 billion.
In its Q1 2021 investor letter, Hayden Capital, an asset management firm, highlighted a few stocks and Amazon.com, Inc. (NASDAQ:AMZN) was one of them. Here is what the fund said:
“Amazon (AMZN):We sold our last remaining stake inAmazon.com, Inc. (NASDAQ:AMZN) this quarter. Amazon was our longest-running investment holding, after having originally purchasing it at the inception of Hayden in 2014, at a price of ~$317.
I gave some details of how Amazon has progressed over these past 6.5 years in last year’s Q2 2020 letter, which partners can find here (LINK). The company has executed amazingly well over this tenure, with revenues up ~3.3x and since our initial purchase, and reported operating income up ~30x over that period.
Generally, I believe there are three reasons to sell an investment:1) we recognize our initial thesis is wrong (sell out as quick as possible), 2) we have a significantly higher returning opportunity to redeploy the capital into (sell-down to fund the new investment), or 3) the company is maturing and hitting the top part of it’s S-curve / business lifecycle, so the business has fewer places to reinvest its capital internally. As such, the future returns will likely be lower than the past. This investment thus becomes a “source of capital” in the future, as we fund earlier-stage investment opportunities.
In the case of Amazon.com, Inc. (NASDAQ:AMZN), we decided to sell due to the third scenario. I’m sure Amazon will continue to generate value for shareholders and continue to keep pace with the broader technology sector. However, I’m just not confident it’s as attractive an investment as when we first invested.
With ~51% of US households having anAmazon.com, Inc. (NASDAQ:AMZN) Prime account (and with very low churn), each of these households continuing to increase their annual spend with Amazon, and few / no real competitors in sight, Amazon is a dominant force that will only continue to accrue value as consumers continue to move from offline to online purchases for their everyday needs. Likewise, the “cash-flow machine” ofAmazon.com, Inc. (NASDAQ:AMZN) Web Services is in a similar position of strength, with AWS now having ~32% market share and continuing to grow at +30% y/y. Because of this, I thinkAmazon.com, Inc. (NASDAQ:AMZN) is probably one of the safest investments in the technology sector today.
So why did we decide to sell the investment then? Simply put, Amazon is …”read the entire letter here]
Along with Visa Inc. (NYSE:V), Apple Inc. (NASDAQ:AAPL), and General Motors Company (NYSE:GM), AMZN is one of the stocks getting the attention of market analysts in 2021.
7. Snowflake Inc. (NYSE:SNOW)
Number of Hedge Fund Holders: 73
Snowflake Inc. (NYSE:SNOW) operates a cloud-based data platform.
Snowflake Inc. (NYSE:SNOW) is a tech stock that was added to the Berkshire portfolio in the third quarter of 2020. The holding, around which the fund has filed no activity over the past year, was worth $1.5 billion at the time. At the end of September, the value of the stake had grown over $1.8 billion.
At the end of the third quarter of 2021, 73 hedge funds in the database of Insider Monkey held stakes worth $14.5 billion in Snowflake Inc. (NYSE:SNOW), up from 70 in the preceding quarter worth $12.5 billion.
Here is what RiverPark Funds has to say about Snowflake Inc. (NYSE:SNOW) in its Q1 2021 investor letter:
“We also established a position in Snowflake Inc. (NYSE:SNOW) during the quarter. Snowflake offers cloud-based data storage and analytics, generally termed “data warehouse-as-a-service.” The data warehousing market—created by the massive, growing amount of user, customer, and account data and the need to search and analyze it—has historically stored its data on physical servers located on-premises. The cloud data platform market—storing data off-premises on cloud servers—is a relatively new $70 billion+ market. Significantly, incremental warehouse data capacity and renewals are expected to be driven by and to the cloud, with more than 75% of databases in the cloud by 2022.
Snowflake Inc. (NYSE:SNOW) requires absolutely no infrastructure management from its users, is fully scalable for each customer, runs on Amazon, Microsoft, or Google cloud platforms, and most critically, Snowflake helps companies analyze their data. The company also has a unique, customer-aligned billing model based on usage. All of which has led to Snowflake Inc. (NYSE:SNOW) being among the leaders of this highly fragmented market, posting 124% revenue growth last year. Snowflake Inc. (NYSE:SNOW)’s growth comes from the combination of more customers—which grew 73% last year—and customers buying more services—the company boasts an amazing 150%+ net customer retention. The company’s growing scale has also led to increasing gross margin and operating leverage, up 1,100 basis points and 8,200 basis points, respectively, over the past two years. The company has guided to FCF break-even this year, and with the company’s capital expenditure-light model—Snowflake uses the public cloud for hosting—we expect FCF to grow much faster than revenue growth, which we forecast to grow comfortably more than 50% per year for the next several years. Additionally, we have great confidence in the Snowflake Inc. (NYSE:SNOW) management team, which previously had an enormously successful run guiding one of our other core Cloud software holdings ServiceNow.”
6. The Kroger Co. (NYSE:KR)
Number of Hedge Fund Holders: 39
The Kroger Co. (NYSE:KR) owns and runs retail stores across the United States.
The Kroger Co. (NYSE:KR) represents 0.85% of the Berkshire portfolio presently. Historical data shows that the fund first purchased a stake in the company in late 2019. It has then steadily added to that stake, growing the value from $549 million in 2019 to $2.5 billion at the end of the third quarter of 2021.
At the end of the third quarter of 2021, 39 hedge funds in the database of Insider Monkey held stakes worth $3.9 billion in The Kroger Co. (NYSE:KR), the same as in the preceding quarter worth $3.5 billion.
Along with Visa Inc. (NYSE:V), Apple Inc. (NASDAQ:AAPL), and General Motors Company (NYSE:GM), The Kroger Co. (NYSE:KR) is one of the stocks on the radar of institutional investors.
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Disclosure. None. Warren Buffett’s Picks: 10 Stocks to Watch is originally published on Insider Monkey.
