For almost 60 years, Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett has impressed Wall Street with his investing prowess. Since becoming CEO in 1965, the man known affectionately as the “Oracle of Omaha” has overseen an aggregate return of nearly 4,950,000% on his company’s Class A shares (BRK.A). That explains why about 40,000 investors eagerly attend Berkshire’s annual shareholder meeting each year.
Many books have been written about Buffett’s “recipe” for success. Although you can Learn more about his fundamental investment philosophyThe Oracle of Omaha tends to focus on proven brand-name companies that have strong management teams and offer well-defined competitive advantages.
Currently, Berkshire’s $386 billion investment portfolio includes 44 stocks and two exchange-traded funds. But make no mistake: These four dozen or so holdings are not created equal.
In his latest annual letter to shareholders, Warren Buffett listed eight existing positions that he and his team intend to hold “indefinitely.” As it happens, one of those eternal positions has quietly become the latest Wall Street firm to conduct a stock split.
Warren Buffett’s Eight ‘Forever’ Assets
With a few exceptions (e.g., Activision Blizzard in 2023), the Oracle of Omaha is putting Berkshire Hathaway’s capital to work with the idea that it’s investing in great companies for years, if not decades. But for eight of the company’s 44 stocks, there’s simply no exit strategy.
It’s probably no surprise that Coca-Cola (NYSE: KO) And American Express (NYSE: AXP) are two of the perennial holdings Buffett mentioned in his letter to shareholders — the reason being that Coca-Cola and AmEx have been continuous holdings since 1988 and 1991, respectively. Thanks to Berkshire’s exceptionally low cost basis in both companies, Buffett oversees annual returns on costs of 60% and 33%, respectively, for Coca-Cola and American Express.
The third company Buffett designated as an undefined holding in his annual letter to shareholders is an oil and gas company. Occidental Petroleum (NYSE: OXY)Since the beginning of 2022, Berkshire’s brightest minds have acquired more than 255 million shares of Occidental common stock, representing a nearly 29% ownership interest in the company. Berkshire also holds more than 83.8 million warrants to purchase Occidental common stock, which have an exercise price of $59.624 per share.
While Occidental’s debt-laden balance sheet isn’t a typical Buffett investment, the company’s drilling segment is ideally positioned to benefit from weak global oil supplies and expected growth in demand for fossil fuels throughout the decade.
Perhaps the biggest surprise is that Berkshire Hathaway’s remaining assets forever are the five Japanese trading houses that Buffett and his top aides, Todd Combs and Ted Weschler, have invested in. I’m talking about Mitsubishi (Wholesale: MSBHF), Itochu (Over the counter: ITOCY) (Over the counter sale: ITOCF), Mitsui (Over the counter: MITSF)(OTC: NO), Marubéni (ON SALE: MARUY)(OTC: MARUF)And Sumitomo (OTC: SSUM.Y)(Over the counter: SSUM.F).
These five Japanese trading companies all have their hands in several fields at once. They regularly have oil and gas operations and manufacturing segments, and are usually involved in food production, among other industries and sectors. In short, Mitsubishi, Itochu, Mitsui, Marubeni, and Sumitomo are essential to the long-term success of the Japanese economy.
Meet the Latest Stock Born from a Wall Street Stock Split (and a Stock Buffett Owned for Life)
Earlier this week, probably unnoticed by 99.9% of investors, one of those eight undefined holdings in Berkshire’s $386 billion portfolio became the latest stock to be spun off on Wall Street.
A stock split This is an event that allows a publicly traded company to adjust its stock price and the number of shares outstanding without impacting its market capitalization or operating performance. These adjustments come in two forms: forward and backward.
In an anticipated stock split, a company seeks to lower its stock price to make it more affordable for ordinary investors. In a reverse stock split, the goal is to increase a company’s stock price, often to ensure that it meets the standards for continued listing on a major stock exchange.
Historically, companies that have conducted early stock splits since 1980 have significantly outperformed S&P 500 within 12 months of the initial announcement of their stock split (25.4% vs. 11.9%). This data point Bank of America Global Research explains why investors tend to gravitate toward companies that do early splits.
On May 1, the board of directors of Japanese trading company Mitsui announced a 2-for-1 forward stock split, with a record date of June 30. Since June 30 fell on a weekend, Monday, July 1, became the effective date of Mitsui’s stock split. The purpose of the stock split, according to Mitsui’s board, was “to make it easier for our shareholders to invest, as well as to increase the liquidity of our shares and further broaden our investor base.”
In addition, Mitsui’s announcement comes with a plan to repurchase 40 million common shares between May 2 and September 20, for a total of $1.3 billion. This equates to 2.64% of the company’s outstanding shares. For companies with stable or growing net income, share repurchases can boost earnings per share (EPS) and make larger companies much more attractive.
Aside from the fantastic ROI programs, Buffett really appreciates the modest compensation of the top executives at the five Japanese trading houses. While CEO salaries can be astronomical and staggering by some American standards, the management teams at Mitsui, Mitsubishi, Itochu, Marubeni, and Sumitomo aren’t breaking the bank or lining their pockets.
Better yet, Mitsui and its peers remain reasonably cheap compared to an expensive U.S. market that has forced Buffett to be a net seller of stocks for six straight quarters. While the S&P 500’s Shiller price-to-earnings ratio is at one of its highest levels in bull market history when tested back to 1871, an industry-leading conglomerate like Mitsui has been valued at a P/E below 10 for most of the past three years.
Warren Buffett and his team love proven value stocks with generous return plans, and that’s exactly what they’re getting with Wall Street’s latest spinoff and Buffett’s perennial holding, Mitsui.
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Bank of America and American Express are advertising partners of The Ascent, a Motley Fool company. Sean Williams has positions in Bank of America. The Motley Fool has positions in and recommends Bank of America and Berkshire Hathaway. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
One of Warren Buffett’s 8 ‘Forever’ Holdings Just Became Wall Street’s Latest Stock to Be Split was originally published by The Motley Fool
