Here are 3 big bets Warren Buffett will be making in 2023 — if you’re nervous about the New Year, maybe it’s time to follow suit.

news7f12/21/2022

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Here are 3 big bets Warren Buffett will be making in 2023 — if you're nervous about the New Year, maybe it's time to follow suit.

As 2022 draws to a close, many investors have learned the hard way that stocks don’t always go up in price.

The Dow is down 10% year-to-date, the S&P 500 is down 20%, while the tech-focused Nasdaq is down 33%.

One major challenge remains heading into 2023: the Fed’s still hawkish stance. The latest inflation figure came in at 7.1% in November — down from June’s 9.1% peak but still at a worryingly high level.

“The historical record strongly warns against easing policy too soon,” Fed Chairman Jerome Powell said recently. “We will continue the course until the work is done.”

Do not miss

Given this challenging backdrop, it may be worth paying attention to an investor who has made huge profits through economic cycles, including periods of high interest rates: Warren Buffett.

From 1965 to 2021, Buffett’s company, Berkshire Hathaway (NYSE:BRK.B) delivered a compound annualized return of 20.1%, outpacing the S&P’s 10.5% compound annual return. 500 in the same period.

Here’s a look at Buffett’s three largest public holdings in 2023.

Apple

No one spending $1,600 on a fully equipped iPhone 14 Pro Max would call it stealing. But consumers still love to splurge on Apple products (NASDAQ:AAPL).

Earlier this year, management revealed that the company’s actively installed hardware base had surpassed 1.8 billion devices.

While competitors offer cheaper devices, millions of users don’t want to live outside the Apple ecosystem. The ecosystem acts as an economic moat, allowing the company to earn outstanding profits.

It also means that when inflation spikes, Apple can pass on higher costs to its global consumer base without worrying too much about a drop in sales.

Today, Apple is Buffett’s largest publicly traded stock, representing about 38% of Berkshire’s portfolio by market value. Of course, the sheer rise of Apple’s stock price is one of the reasons for that concentration. Over the past five years, the tech giant’s stock has surged more than 200%.

Apple currently offers a dividend yield of 0.7%.

american bank

Bank of America is Buffett’s second-largest publicly traded stock — 10.4% of his portfolio.

Stocks deserve investors’ attention today for one very simple reason: while many sectors fear rising interest rates, banks are counting on them.

Banks lend money at a higher interest rate than they borrow, pocketing the difference. As interest rates rise, the difference in the amount a bank earns increases.

And incidentally, Bank of America increased its payout ratio to shareholders.

In July, Bank of America increased its quarterly dividend by 5% to 22 cents per share — and that was after the company’s 17% dividend increase in July 2021.

At the current share price, the bank offers an annual interest rate of 2.7%.

letter V

Although 2022 is a bad year for the stock market as a whole, not every company is in the doldrums. For example, oil producers continue to squander profits and cash flows.

It’s not hard to see why. Although the oil business is capital intensive, it tends to perform very well during periods of high inflation.

Buffett will not miss this opportunity. One of his big moves in 2022 is investing in Chevron (NYSE:CVX). In fact, the company now represents the third-largest public stake in Berkshire, with a weighting of 9.1%.

For the third quarter, Chevron reported earnings of $11.2 billion, up 84% year-over-year. Sales and other operating revenue totaled $64 billion in the quarter, up 49% year-over-year.

In January, Chevron’s board of directors approved a 6% increase in the quarterly dividend rate to $1.42 per share. That gives the company an annual dividend yield of 3.3%.

The stock has also had a nice rally, up 44% in 2022.