For almost six full decades, Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) Warren Buffett, CEO circles around the Wall Street benchmarkTHE S&P500. As the S&P 500 Index nears an overall gain of 35,000%, including dividends paid, since the mid-1960s, Berkshire Hathaway Class A shares (BRK.A) have generated a greater overall gain at 5,060,000% without a single dividend being paid during the period. same duration.
Given the Oracle of Omaha’s penchant for outperforming major Wall Street stock indexes, it’s no surprise that investors are eagerly awaiting the quarterly release of Berkshire Hathaway’s Form 13F filing with the Securities and Exchange Commission .
A 13F is a required filing for institutions with at least $100 million in assets under management (AUM). It allows investors to see what top Wall Street money managers bought and sold over the last quarter. May 15 marked the filing deadline for the quarter ending in March.
Did you know that Warren Buffett has a “secret” portfolio?
While Berkshire Hathaway’s 13Fs often provide solid insight into the stocks, sectors and trends that pique the interest of Warren Buffett and his top investment advisors, Ted Weschler and Todd Combs, these filings don’t tell the whole story. history.
In 1998, Berkshire acquired General Re in a $22 billion deal. Although the price of this purchase was General Re’s reinsurance operations, General Re also owned a specialist investment company – New England Asset Management (NEAM). When Buffett’s company completed the transaction 26 years ago, it became the new owner of NEAM.
NEAM ended the March quarter with approximately $646 million in assets under management, meaning it is required to file a 13F like any other institutional investor. Although Warren Buffett does not oversee NEAM’s investments in the same way he manages Berkshire Hathaway’s $380 billion portfolio, the 90 securities held in NEAM’s portfolio ultimately belong to Berkshire Hathaway. Thanks to an acquisition 26 years ago, Warren Buffett has a “secret” portfolio of $646 million.
Although an assortment of exchange-traded funds make up the largest positions in Buffett’s secret portfolio, dozens of name-brand companies are also owned by NEAM. During the first quarter, the following five magnificent stocks were added to this hidden portfolio.
AT&T and Verizon Communications
Although Warren Buffett has mostly avoided inheritance telecommunications companies in recent years, the 13F of the NEAM shows that 22,235 shares of AT&T (NYSE:T) and 14,175 shares of VerizonCommunications (NYSE:VZ) were purchased during the quarter ended March. I’m grouping these two companies together because they share many of the same catalysts and headwinds.
Legacy telecom providers like AT&T and Verizon have largely underperformed in the current bull market due to rapidly rising interest rates (which could make future refinancing and deal-making more expensive) and a report of The Wall Street Journal (WSJ) last year which highlighted the potential dangers of lead-sheathed cables. THE WSJ The report suggests that incumbent carriers like AT&T and Verizon could face high cleanup costs and health-related liabilities because of their lead-clad cables.
The good news for AT&T and Verizon is that any potential liability claims would likely be decided by the U.S. court system, which is notoriously slow.
Additionally, AT&T has made substantial progress in reducing its net debt following the divestiture of the WarnerMedia content arm in April 2022. Over the past two years, AT&T’s net debt has slightly decreased by more than 40%. billion dollars to reach 128.7 billion dollars. Verizon, on the other hand, has yet to make significant progress in reducing its outstanding debt.
AT&T and Verizon are also benefiting from the 5G revolution. Upgrading their networks to support 5G speeds has led to an increase in data consumption of their respective wireless customers and a sustained increase in broadband net additions. Verizon added 389,000 net broadband customers in the first quarter, while AT&T has gained at least 1 million net broadband customers for six straight years.
Johnson & Johnson
Another stunning stock added to Warren Buffett’s secret portfolio – 2,225 stocks purchased in the quarter ended March – is the health care conglomerate. Johnson & Johnson (NYSE:JNJ). J&J, as Johnson & Johnson is more commonly known, was once one of Berkshire’s largest holdings. However, Buffett soured on the company after it committed the cardinal sin of using its own shares as collateral to facilitate the acquisition of medical device company Synthes in 2012.
Like AT&T and Verizon, J&J shares have underperformed since the current bull market took shape. This can be attributed to the legal issue J&J is facing regarding its now-discontinued talc-based baby powder. About 100,000 lawsuits allege that J&J’s baby powder causes cancer. Previous efforts by the company to resolve this dispute have failed.
But J&J has something that only one other publicly traded company has: the highest possible credit rating (AAA) from Standard & Poor’s (S&P). S&P is confident that J&J will be able to service its debts and use its cash and/or operating cash flow to cover settlement costs.
Additionally, J&J continues to benefit from its transition to new drug development. Branded therapies enjoy strong pricing power and have significantly increased J&J’s margins.
Wells Fargo
A fourth flagship stock purchased for Warren Buffett’s hidden portfolio during the first quarter – 6,830 stocks were added – was the Central Monetary Bank. Wells Fargo (NYSE:WFC). Like Johnson & Johnson, Wells Fargo was once one of Berkshire Hathaway’s top holdings. Unfortunately, an unauthorized accounts scandal shook confidence in the company, ultimately forcing the Oracle of Omaha to head for the exit as well.
The promise and danger of bank stocks is that they are cyclical. Although some indicators suggest a recession may be on the horizon, such as the first notable decline in U.S. M2 money supply since the Great Depression, periods of economic expansion largely outlast downturns. Disproportionately long growth periods allow bank stocks like Wells Fargo to steadily grow their loan portfolios over time.
Additionally, big banks like Wells Fargo are also enjoying the fastest rate hike cycle in four decades. Higher lending rates have allowed banks with outstanding variable rate loans to reap the rewards of additional net interest income each quarter. While core inflation remains stubbornly high, the Fed is in no rush to cut rates.
Another long-standing advantage of Wells Fargo is its ability to attract affluent customers. Bank customers with higher incomes are less likely to change their spending habits during economic downturns. This puts Wells Fargo in a better position to weather a challenging economic climate.
Chevron
The fifth magnificent stock purchased for Warren Buffett’s secret $646 million portfolio is none other than the energy titan. Chevron (NYSE: CVX). Although Berkshire Hathaway sold more than 3 million Chevron shares in the quarter ended in March, New England Asset Management added 1,900 shares to its existing holding.
Macroeconomic factors are one reason why oil and gas giant Chevron is so attractive right now. Several years of uncertainty over oil and gas demand during the COVID-19 pandemic have caused major global energy companies (including Chevron) to reduce capital spending. With the worst of the pandemic now behind us, increasing the supply of crude oil is proving difficult. Catching up for years of depressed capital spending won’t happen overnight, and it’s helping drive up the spot price of crude oil.
Chevron is also in the process of acquiring Hesse in a $53 billion all-stock deal. Assuming the deal gets the green light, Chevron will add 465,000 net acres in the oil-rich Bakken Shale and increase its oil-equivalent production in Guyana. Having one of the most flexible balance sheets among major oil and gas companies makes major acquisitions and premium dividend payouts possible.
In addition to generating substantial margins and operating cash flow from its drilling segment, Chevron is an integrated energy company. It owns transportation pipelines, chemical plants and refineries, all of which generate predictable operating cash flows and help protect against falling crude oil spot prices.
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Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Sean Williams holds positions in AT&T and Wells Fargo. The Motley Fool ranks and recommends Berkshire Hathaway and Chevron. The Motley Fool recommends Johnson & Johnson and Verizon Communications. The Mad Motley has a disclosure policy.
5 Gorgeous Stocks Bought for Warren Buffett’s ‘Secret’ $646 Million Portfolio was originally published by The Motley Fool
