Warren Buffett's Hand-Picked Successor, Greg Abel, Has 58% of Berkshire Hathaway's Portfolio Invested in Just 5 Dow Stocks. Here's My Top Pick for July.
Key Points
It comes as no surprise that Buffett’s portfolio and value-stock-picking philosophy is still evident in Berkshire’s holdings.
Extreme concentration and oversized positions illustrate a high degree of confidence in a handful of names.
One of the 30 Dow stocks that’s also owned by Berkshire Hathway is a top prospect for most growth investors looking for a new holding.
If there was ever any question that Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB) believes in buying and holding high-quality blue chip stocks, this will wipe away any doubt: Over half of Berkshire's current stock portfolio consists of stocks that are also one of the 30 tickers that make up the Dow Jones Industrial Average.
Indeed, confidence in these names is so high that -- like his predecessor Warren Buffett -- current Berkshire CEO Greg Abel is OK with just five Dow stocks accounting for 59% of the conglomerate's stock portfolio's total value. That's a vote of confidence worth noting.
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And one of these five names is a particularly compelling prospect to consider buying this month.
Image source: The Motley Fool.
Five good ones, but one great one
The table below provides the details, with a precise apportionment for each position. Although any Berkshire pick is arguably worth a look, the confident concentration in just these five names speaks volumes.
| Holding | Percentage of Berkshire Hathaway's Portfolio Value |
|---|---|
| Apple (NASDAQ: AAPL) | 20.5% |
| American Express (NYSE: AXP) | 15.6% |
| Coca-Cola (NYSE: KO) | 9.8% |
| Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) | 9.1% |
| Chevron (NYSE: CVX) | 4.1% |
Data source: CNBC.
Among these five tickers right now, however, one is an especially scintillating prospect for July. That's the Dow Jones Industrial Average's newest addition, Alphabet.
Yes, the tech stock's relative weakness since early May is a key part of the bullish argument, though certainly not the only or most important part. The crux of the reason Alphabet is a great addition to almost any growth portfolio remains its dominant role as a gatekeeper to the World Wide Web.
Numbers from Statcounter indicate that Google Search's market share is still an incredible 91%, while its free-to-use email service, Gmail, remains the world's most-used email app of its kind. Its mobile operating system, Android, is installed on nearly 70% of the world's mobile devices, again according to Statcounter.
It matters simply because Google and all of its interrelated offerings -- including YouTube -- still account for more than 80% of the company's total top line, as well as the bulk of its bottom line.
That being said, Alphabet is in an enviable position right now. While its core businesses continue to crank out plenty of cash, it's also building a new one with explosive potential without borrowing or breaking the bank.
This business is cloud computing, of course, and the development of artificial intelligence (AI) technology in particular. Google Cloud's revenue grew 63% year over year in the first quarter, more than tripling operating income as a result, now that significant scale has been achieved.
That's still just the beginning. Alphabet is also now designing and manufacturing (through third-party contract manufacturers) its own AI processors. This is mostly to serve its cloud customers who need such solutions, although it can certainly use this technology for its own purposes too. For example, Alphabet could use artificial intelligence to predict how worldwide web traffic might change over time in response to world events, while Google's AI chatbot assistant Gemini is powered by the company's own in-house Tensor Processing Units (TPUs).
Google's Gemini, by the way, is slowly chipping away at ChatGPT's dominance of the artificial intelligence assistant space. It's still well behind ChatGPT on this front, to be clear. Being able to penetrate a space largely established by a name with a huge head start, however, is impressive to say the least. It suggests Alphabet will be able to compete when AI chatbots become the primary way people work with technology. To this end, Precedence Research expects the global chatbot market to grow at an average annualized pace of nearly 19% between now and 2035.
Best bet among the Dow's growth blue chips right now
This isn't to suggest the other four Dow stocks that make up a prominent part of Berkshire Hathaway's portfolio, like Coca-Cola and American Express, aren't also solid at this time. There's even a case to be made for scooping up Chevron shares right after their recent setback stemming from the weakening price of crude oil.
If you've only got room for one blue chip growth stock in your portfolio right now, Alphabet appears to be the market's most underestimated and undervalued name of its ilk.
Analysts think so anyway. The vast majority of them currently rate Alphabet a strong buy, with a consensus target of $435.83, which is 20% above the ticker's recent price. That's not a bad way to start out a new trade.
American Express is an advertising partner of Motley Fool Money. James Brumley has positions in Alphabet and Coca-Cola. The Motley Fool has positions in and recommends Alphabet, American Express, Apple, Berkshire Hathaway, and Chevron. The Motley Fool has a disclosure policy.