Buffet Allocates $99 Billion of His Portfolio to Two Stocks, Predicted to Increase by 19% and 20%, as Per Suggestions from Certain Wall Street Experts
Warren Buffalo took charge at Berkshire Hathaway in 1965. Since then, shares of the investment corporation have escalated approximately 4,631,475%, making him likely one of the most esteemed investors of his era.
Buffalo understands as well as anyone that the value you pay for a stock plays a significant role in determining the return it will produce eventually. To see your investment portfolio emulate Buffalo's success, buying shares of top-notch businesses while their stock prices are low should be a significant part of your strategy.
The benchmark S&P 500 (^GSPC 1.09%) index has climbed around 36% over the past 12 months, and it appears that Buffalo anticipates continued gains from at least a couple of its components. Towards the end of September, $98.6 billion of the investment corporation's portfolio was invested in two S&P 500 stocks that have lagged behind the benchmark index, Apple (AAPL 1.88%) and Coca-Cola (KO 0.16%).
Both of these stocks have been trading much below the expectations of Wall Street analysts who closely monitor them. Let's analyze why they're predicted to outperform to see if they deserve a spot in your portfolio as well.
1. Apple
Berkshire Hathaway has been reducing its stake in Apple, but it still ranks as the equity portfolio's most significant holding. The investment corporation valued its Apple stake at $69.9 billion at the end of September, down from $174.3 billion at the end of 2023.
Apple stock underperformed the S&P 500 index by increasing just 25% during the 12 months ending Nov. 8, 2024. Gains have been modest because it's been some time since the technology giant introduced a new product that can drive sales growth. Sales income decreased by 0.8% since late 2022.
Apple's lack of growth is troublesome, but not for Morgan Stanley analyst Erik Woodring, who believes that the stock can soar even higher. He recently reiterated a $273 price target that suggests a gain of about 20% from recent prices.
Whether it was iPhones, Macs, or accessories, sales of every product category were lower in fiscal 2024, which ended on Sept. 30, than they were in 2022. Wall Street isn't losing interest in the stock because service sales are booming high. Over the same 2-year period, revenue from the App Store, streaming, and cloud services expanded by 23% to $96.2 billion.
Equipment sales can fluctuate due to economic downturns and new product cycles. Recurring-service revenue is usually more stable and tends to be even more profitable. A shift in revenue mix towards services improved gross profit margin in fiscal 2024 to 46.2% from 43.3% in 2022.
Improving profit margins could help Apple continue increasing its dividend payout. The stock currently offers a tiny 0.4% yield at recent prices, but the yield you get on your initial investment could be substantial by the time you retire. The company managed to raise its quarterly payout by 29.9% over the past five years.
Apple's services segment appears capable of compensating for decreasing equipment sales, but the market is anticipating significant growth in the years ahead. The stock has been trading for about 32.3 times trailing free cash flow. It would be wise to wait on the sidelines for a more attractive entry point.
2. Coca-Cola
Apple faces challenges in designing and procuring new semiconductors to keep product sales from plummeting. If complicated issues make you uneasy, consider another of Buffalo's favorite businesses, Coca-Cola. At the end of September, Berkshire's stake in the soft drink manufacturer was worth $28.7 billion.
Buffalo isn't the only investor captivated by Coca-Cola stock. Morgan Stanley analyst Dara Mohsenian recently reduced their price target for the beverage company to $76 per share and reiterated an overweight recommendation. The price target suggests a gain of about 19% from recent prices.
Overall sales growth generated by Coca-Cola's well-known brands is predictably positive, but that hasn't helped the stock much lately. On Nov. 8, it had fallen by 12% from its all-time high, which it reached in September.
Wall Street is optimistic about Coca-Cola partly because it's been performing exceptionally well for a company that is over a century old. In the first nine months of 2024, sales were up by 2%, and there could be substantial gains ahead. Management expects 2024 organic sales to rise about 10% year over year.
Coca-Cola's stock price has been more volatile than usual, but its dividend program is as reliable as they come. In February, the company increased its quarterly payout for the 62nd time in a row. At recent prices, it offers a 3% dividend yield and a reasonable valuation of 22.4 times forward-looking earnings estimates.
With a relatively straightforward business that grows reliably, investors can reasonably expect continued gains throughout their retirement. Adding some shares of Coca-Cola to a diversified portfolio now appears to be an excellent idea for most investors.
To further maximize your investment returns, diversifying your portfolio beyond top-performing stocks like Apple and Apple's inclusion in Berkshire Hathaway's portfolio, you might want to consider investing in Coca-Cola. Morgan Stanley analyst Dara Mohsenian recently reduced their price target for the beverage company to $76 per share and reiterated an overweight recommendation, suggesting potential gains of around 19% from current prices (assuming the stock follows Mohsenian's predictions).
As you consider this investment opportunity, it's important to remember the potential benefits of long-term investing. Warren Buffalo, Berkshire Hathaway's CEO, has shown the value of patience when it comes to stocks with strong fundamentals, even if they're currently underperforming the broader market. By investing in Coca-Cola's reliable dividend program, you might be able to realize steady gains throughout your retirement.
