Nearly 36% of Berkshire Hathaway's Portfolio Is in These 2 Stocks. Are They Buys Right Now?
Key Points
Apple has long been Berkshire Hathaway's largest holding.
Apple and American Express' brands have created loyal customers who aren't sensitive to price increases.
American Express customers are willing to pay a premium for the luxury perks that come with the card.
Berkshire Hathaway has always had a diversified portfolio, but it's typically been top-heavy. That's still true today. Its top two holdings are Apple (NASDAQ: AAPL) and American Express (NYSE: AXP), which account for 21.4% and 14.5% of its portfolio, respectively.
Simply copying a trillion-dollar corporation is a potential strategy for the average investor, but with Berkshire committing nearly 36% of its portfolio to two stocks, is that a sign you should be all in on them, too?
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If you're a fan of Warren Buffett's wisdom, then absolutely.
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You can't put a price on a premium brand
Informed investors know Buffett was a fan of undervalued, cash-flow-heavy businesses, but he also looked for companies with a premium brand. To Buffett, a power brand was a competitive advantage because it created customer loyalty and the ability to charge a premium.
Both Apple and American Express have premium brands that set them apart from their competitors. Owning Apple products has become a lifestyle choice, and most people won't jump ship once they join Apple's ecosystem. Owning an American Express card is a status symbol for a certain level of success.
These things alone don't make them great businesses, but it usually takes great businesses to get to those points.
The biggest brand in technology
Few brands have a loyal customer base quite like Apple's. Although its product line hasn't changed meaningfully in years, it's still a major cash cow thanks to repeat customers and high margins. In just its most recent quarter, the company generated $111.2 billion in revenue, up 17% year over year. More than 51% of that came just from iPhone sales.
Part of having a premium brand is having higher pricing power. When the iPhone was released, its two models were priced at $499 and $599. Today, the iPhone 17 Pro pricing starts at $1,099. When you have a premium brand, you can charge premium prices, and Apple has leaned into that.
The company has also done a great job of pairing its beloved hardware with a services ecosystem that complements it well. Whether it's iCloud, Apple Pay, or other services, once you're locked into the ecosystem, the switching costs aren't worth it in many cases.
The luxury credit card company
Unlike companies like Visa and Mastercard, American Express runs a closed-loop network. While Visa and Mastercard only operate their payment networks, American Express issues its own cards and runs its payment network. This requires the company to take on more debt obligations, but it also allows it to get a piece of the transaction at every step.
American Express' main appeal is the perks and luxury benefits that come with its cards. That's why it can charge hundreds in annual fees. Its Platinum card costs cardholders $895 annually, which is close to a rent payment for many people in the U.S.
People are willing to pay American Express' fees for the premium perks (especially travel-related ones). The company has done a great job of turning a credit choice into a "lifestyle" choice. It attracts high-earning customers who can still stick around for the long haul.
Both stocks are good purchases for long-term investors.
American Express is an advertising partner of Motley Fool Money. Stefon Walters has positions in Apple and Visa. The Motley Fool has positions in and recommends American Express, Apple, Berkshire Hathaway, Mastercard, and Visa. The Motley Fool has a disclosure policy.