Berkshire Hathaway CEO Warren Buffett has long been regarded as a legend within the investment community. Bloomberg estimates Buffett’s total wealth at £84.6bn. This has largely been driven through decades of very smart trading.
Many investors follow Buffett’s tips and trades obsessively, including myself. His value-driven philosophy is clear: “Price is what you pay. Value is what you get”. His investment fund reported just under £0.8bn in net earnings for FY21. It seems this philosophy holds some truth.
Berkshire Hathaway also disclosed its total holdings on June 30. Two of the top four shares held are Chevron (NYSE: CVX) and Coca Cola (NYSE: KO) — adding up 15% of its portfolio. I think it’s time to look at whether I should buy these stocks too.
Energy company Chevron currently trades at a share price of $158. The stock dropped 4% last week, having leapt 63% across the last 12 months. Warren Buffett emphasises the need for reliable investing, saying he puts “a heavy weight on certainty”. But can I be certain of Chevron’s long-term prospects?
The company reported a strong performance in its FY21 report. Net income bounced back from a loss of £0.48bn (all GBP figures at current exchange rates) to a gain of £1.4bn. Also, the stock continued its dividends of roughly 4.5p a share, demonstrating consistent financial strength.
Yet Chevron’s position in the energy industry makes me uncertain. Governments are increasingly turning away from oil producers. Instead, aiming to use more renewable energy sources and reduce greenhouse gas (GHG) emissions. Management stated intentions to achieve net zero GHG emissions for upstream productions by 2050.
But I think this transition is too slow compared to other industry players. For example, Powerhouse Energy has already begun development of its fully-renewable energy plants. Because of this, I don’t hold Buffett’s ‘heavy-weight certainty’ in Chevron’s long-term prospects. I won’t be adding the shares to my portfolio right now.
Coca-Cola’s stock has enjoyed a smoother recent journey. The share price has slowly risen just under 10% in the last year, now sitting at $61 a share.
Yet Coca-Cola didn’t inspire confidence with its recent Q2 report. Operating margins fell from 29.8% to 20.7% year on year. This led to cash flows from operations declining a total £0.87bn. Management blamed this fall on currency headwinds and increased marketing investment. Also, total assets decreased by £1.03bn. This all led to the share price falling 4% in the last month.
However, it’s not the share price Buffett focuses on. It’s the value found in the business’s core structure that he underlines. In this case, Coca-Cola would seem to be a no-brainer buy. Huge brand recognition and operations spanning across five continents suggest that the beverage titan could be a safe long-term hold.
But the company has recently suffered sizeable crashes in margins and total assets. Because of this, I think Coca-Cola may not have such good prospects across the coming years. While Warren Buffett has added shares to his portfolio, I won’t be adding them to mine any time soon.