Which of these long-standing Warren Buffett stocks are on the verge of disappearing?
Follow the legendary investor’s investment strategy Warren Buffett has not been a bad idea for investors. The CEO of Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) has a history of selecting great companies and owning their stocks for a long, long time. This is generally going quite well for the shareholders of Buffett and Berkshire.
However, while Buffett’s preferred holding period may be eternal, sometimes he decides it’s time to end a long-held stock. When Berkshire announced its latest quarterly portfolio movements, one of the Buffett’s oldest holdings got the boot unceremoniously. Moreover, another long-standing pillar of Berkshire’s portfolio could be on its heels in the months to come. Below, we’ll take a look at the five holdings and what Buffett did at the end of 2020 to turn things around.
No change in many of Buffett’s oldest holdings
The longest-standing stock in Berkshire’s portfolio is Coca Cola (NYSE: KO). Buffett made a purchase of 400 million shares, adjusted for subsequent stock splits, in 1988. This stake has remained unchanged for the past 33 years, and steady growth in dividends has given Buffett increasing rewards for its continued participation.
Coca-Cola having paid $ 1.64 per share in total dividends in the past year, Berkshire earned $ 656 million in dividend income in 2020 – a reasonable return on a stake worth around 20 billion which ranks among the top three positions in the portfolio. It also represents a 9% stake in Coca-Cola.
Nothing has changed in the position in Berkshire’s most recent report. As long as there is a can of Diet Coke on the table in front of Buffett at Berkshire’s annual shareholders meeting, there will likely not be a sale of his Coca-Cola shares in the future.
American Express (NYSE: AXP) is another top pick from Buffett and has been in the portfolio since 1993. Berkshire’s position has remained constant at around 151.6 million shares for years and is currently competing for a position with Coca-Cola at just under $ 20 billion.
American Express’s 1.3% dividend yield is not as lucrative as that of the soft drink giant, but AmEx stock has seen more price growth. Buffett left his nearly 19% stake in American Express unchanged to end 2020, and it is likely to hold its own for the foreseeable future.
Recently, Moody’s (NYSE: MCO) has been a Buffett choice for over two decades. Unlike AmEx and Coca-Cola, Berkshire has sold a substantial portion of its holdings at Moody’s in the past, notably in the aftermath of the 2009 financial crisis.
Nonetheless, Buffett has enjoyed the activities of the rating agency enough to retain a 13% stake worth around $ 7 billion at recent prices. Barring another controversy of a similar type to the one that prompted the initial sale, it seems likely that Moody’s will maintain a presence in the portfolio.
One bank is shown the door – and another might follow
Buffett made two changes that affected the other pair of his five oldest stocks. M&T Bank (NYSE: mountain biking) has been part of Buffett’s holdings since he made a preferred stock investment in the early 1990s. Yet M&T was one of the many banks which Berkshire gradually reduced from early 2020. In the end, it only took three-quarters for the bank to be completely wiped out of Buffett’s holdings.
In addition, Wells fargo (NYSE: WFC) continued to see a sharp decline in the size of its position within the Berkshire portfolio. With a history dating back to 1989, Wells sometimes held more than 10% of its outstanding shares in Buffett’s hands, with a position peaking at nearly 480 million shares. Over the past year, that stake has grown from 323 million shares at the start of 2020 to just 52.4 million at the end of the year.
The $ 1.6 billion value of that stake now represents less than 1.3% of Wells Fargo’s outstanding shares. Given the constant shrinkage, it seems almost certain that Wells Fargo will disappear into sunset in 2021 – and many will say good riddance, given the bank’s lingering controversies over the years.
Changing of the guard?
Some investors conclude that the sale of long-held shares at Berkshire means Buffett no longer really manages the firm’s portfolio. Indeed, the CEO has heirs apparent behind the scenes, ready and willing to take over when needed.
Most Berkshire shareholders, however, want Buffett to stay in charge for as long as possible. This may mean substituting better choices for stocks that have been held for a long time in the portfolio, but it is okay if it means holding the most suitable investments to produce big long-term gains.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.