Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett is a truly remarkable business picker. To illustrate the point, a mere $100 invested in Berkshire Hathaway stock 43 years ago would now be worth a staggering $187,000. However, even Buffett is not immune to the forces of "creative destruction" that shape the American economy.
To wit, most of Buffett's extraordinary returns over the years have come from a small handful of exceptional performers such as Apple, American Express, and Coca-Cola. These top performers have been able to consistently expand into new markets, often driving their competitors to extinction.
On the flip side, Buffett has also lost money on many investments over the years due to this same competitive dynamic; a fact that reflects another well-known market phenomenon in that less than 2.5% of all publicly traded stocks account for a whopping 10% of wealth creation over the past 40 plus years.
The lesson here for lay investors is that winning stocks tend to keep winning. Armed with this insight, here is a look at one of Berkshire Hathaway's best stock picks in the past three years, and why this market-crushing stock is still a strong buy right now.
A telecom juggernaut
Berkshire Hathaway first purchased shares of T-Mobile(NASDAQ: TMUS) in the third quarter of 2020, according to whalewisdom.com. The diversified conglomerate's share purchases occurred only a few months after T-Mobile completed its merger with Sprint, a move that made it one of the largest wireless carriers in the United States. The big ticket item for investors is that this strategic merger gave the company the scale necessary to compete on even footing with industry titans AT&T(NYSE: T) and Verizon(NYSE: VZ).
Although T-Mobile's shares haven't outperformed the benchmark S&P 500 since this merger went through, its shares are still up by a healthy 79.6% over this period. Moreover, it now has the staying power to be a major player in the U.S. telecom industry for the foreseeable future.
Even though T-Mobile's stock hasn't been a market beater in recent times, its prior three-year performance is substantially better than that of so-called "risk-free" assets such as T-bills over this period.
T-Mobile's stock has thus performed exceptionally well on a risk-adjusted basis over Berkshire Hathaway's ownership period, which is most likely the holding company's real performance target. Very few stocks consistently outperform the S&P 500 index after all.
Why is T-Mobile stock still a buy?
There are three simple yet powerful reasons to consider following Berkshire Hathaway's lead on this top telecom stock right now.
First up, the company recently started paying a dividend. While its yield of 0.43% won't appeal to passive income investors, this figure is within the sweet spot for dividend stocks as capital appreciation vehicles.
Second, T-Mobile has been steadily buying back shares in recent quarters, which is a positive development for shareholders.
Third, Wall Street analysts expect the U.S. telecom industry to stabilize from a competitive positioning standpoint over the next several years, which should result in improving free cash flows for T-Mobile, as well as its fellow wireless carriers AT&T and Verizon.
Among the big three U.S. wireless carriers, T-Mobile is easily the most appealing as a capital appreciation vehicle. And with management ratcheting up the company's shareholder rewards program, its prospects as a growth vehicle look exceptionally bright.
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American Express is an advertising partner of The Ascent, a Motley Fool company. George Budwell has positions in AT&T and Apple. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool recommends T-Mobile US and Verizon Communications and recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy.