You’ve probably heard of the 80-20 rule. Also known as the Pareto principle. The idea is that about 80% of the results are created by about 20% of the causes. This 80-20 rule applies in a surprising number of scenarios. As an example, look at where Warren Buffett and his team invest Berkshire Hathawayof (BRK.A -0.00%) (BRK.B -0.05%) money.
Berkshire has stakes in 47 companies. (However, there are actually 50 stocks, as some companies have multiple classes or series of stocks.) The Pareto principle percentages don’t exactly apply to Berkshire’s investments, but they’re really close. As 2023 begins, 80 percent of Buffett’s portfolio is invested in these seven stocks.
1. Apple
apple (AAPL 0.25%) It ranks as Buffett’s largest holding, accounting for 36.8% of Berkshire’s total portfolio (including shares owned by Berkshire’s New England Asset Management subsidiary). Stocks fell sharply in 2022. Don’t be surprised if Buffett further increases his position in Apple by trading the tech giant at a discount.
2. Bank of America
Buffett’s love for bank stocks has waned a bit over the past year. However, he remains a fan Bank of America (BAC -0.06%). The stock makes up 10.8% of Berkshire’s portfolio (including shares owned by New England Asset Management). While BofA’s stock price may fall slightly in 2022, the big bank should benefit from higher interest rates in the new year.
3. Chevron
Chevron (CVX 0.66%) It ranks 3rd, accounting for 9.6% of Berkshire’s total portfolio. Buffett bet big on the oil and gas giant — and it’s paid off so far. Chevron shares soared in 2022 and played a big role in Buffett beating the market.
4. Coca-Cola
Buffett liked it Coca Cola (KO -0.53%) — both drinks and stock — for decades. The blue-chip stock currently makes up 8.1% of Berkshire’s total portfolio. Although Coca-Cola performed poorly S&P 500 in the last 10 years, in 2022 it has outperformed the main index.
5. American Express
American Express (AXP 0.29%) It stands out as another long-time favorite for Buffett. 7% of Berkshire’s total portfolio is invested in financial services stocks. Amex has long been a big winner for Buffett. However, 2022 was a down year for the stock even though it outperformed the overall market.
6. Kraft Heinz
Berkshire holds a 26.6% stake Kraft Heinz (KHC 0.07%). This is enough to make up 4.2% of the conglomerate’s total portfolio. Kraft Heinz is listed as a subsidiary on Berkshire’s website. Although Kraft Heinz stock has generally underperformed over the past decade, it is among Buffett’s winners in 2022.
7. Occidental Petroleum
Occidental Petroleum (OXY 1.14%) He had a great year in 2022. Its value more than doubled. That made it not only the best-performing stock of the year for Buffett, but also the biggest winner in the S&P 500. Huge returns combined with aggressive buying through 2022 have elevated Occidental to Buffett’s No. 7 position, accounting for 3.9% of it. Berkshire’s overall portfolio.
Applying the 80-20 rule to these top Buffett stocks
Will the Pareto principle apply to these top Buffett stocks in 2023, with roughly 20% generating 80% of the year’s total return? We have to wait and see. However, I wouldn’t be surprised if one or both of these stocks deliver big returns in 2023.
If I had to choose the most likely to succeed, Occidental would be at the top of the list. Of all the stocks Buffett is buying in 2022, oil stocks look to be among the best bets for 2023, in my opinion.
I expect oil prices to remain high, helping both Occidental and Chevron. It also appears that Buffett will continue to buy additional shares of Occidental. Berkshire has received approval to buy up to 50% of the oil and gas producer in August 2022. Maybe the company won’t get that big of a stake. Like the 80-20 rule, the actual percentage may not be exact, but it may be close.
Bank of America is an advertising partner of The Ascent, a Motley Fool company. American Express is an advertising partner of The Ascent, a Motley Fool company. Keith Speights has held positions at Apple, Bank of America and Berkshire Hathaway. The Motley Fool owns and recommends positions in Apple, Bank of America and Berkshire Hathaway. The Motley Fool recommends Kraft Heinz and recommends the following options: Berkshire Hathaway $200 calls January 2023 Coca-Cola $47.50 calls January 2024 Apple March 2023 $120 calls, short January 2023 $200 calls on Berkshire Hathaway will be $265 on Berkshire Hathaway in 2023, and $130 calls on Apple in March 2023. The Motley Fool has a disclosure policy.