Berkshire Hathaway
kept secret a billion-dollar stock investment in the third quarter, and that mystery stock could be revealed when the company reports its fourth-quarter equity holdings Wednesday.
When Berkshire Hathaway disclosed its U.S. equity holdings as of Sept. 30 via its quarterly 13-F filing with the Securities and Exchange Commission in mid November, it had asked the regulator for confidential treatment for one or more stocks.
It was Berkshire Hathaway’s first such request since late 2020, when Berkshire was accumulating shares of
Chevron
and
Verizon Communications.
Barron’s best guess is that assuming that Berkshire Hathaway bought just one stock in the third quarter, the target may be Morgan Stanley,
BlackRock,
or
Chubb.
The stock is likely a financial company because Berkshire Hathaway disclosed in its third-quarter 10-Q report that its cost basis in financials went up in the period $1.2 billion, while its cost basis in other groups of stocks declined.
The third-quarter filing shows Berkshire didn’t add to existing holdings of financial stocks, meaning it had initiated an investment in a new company.
Berkshire Hathaway presumably began buying the stock in the third quarter, and asked the SEC for the target to be kept secret so it could continue accumulating the stock in the fourth quarter without other investors pushing the stock higher.
The disclosure of a new Berkshire Hathaway investment can lift that stock’s price because buyers want to follow Berkshire CEO Warren Buffett’s investment moves. Buffett runs about 90% of Berkshire Hathaway’s equity portfolio of about $350 billion with two other managers, Todd Combs and Ted Weschler, handling the rest.
When Berkshire Hathaway reports its fourth-quarter equity holdings on Wednesday, it may file an updated 13-F report for the third quarter with the new holding—or holdings—included. It’s possible that Berkshire Hathaway could request that the stock or stocks be kept secret for a second quarter in a row.
Investors also will be interested to see any new Berkshire Hathaway purchases—and sales—in the fourth quarter aside from the mystery stock. Berkshire Hathaway wasn’t an active buyer of stocks in the first three quarters of 2023, purchasing about $9 billion, and selling nearly $33 billion. This suggests another quarter of relative inactivity in the fourth quarter.
As for the mystery stock, we’re assuming Berkshire Hathaway bought a top-25 financial company by market value to allow Buffett to more easily accumulate a position of as much as $5 billion. That would be big enough to move the needle at Berkshire Hathaway, which has a market value of $860 billion.
Berkshire Hathaway has been a seller of several financial stocks in recent years, including stakes in
JPMorgan Chase
and
Goldman Sachs Group,
as well as longtime holdings in
Wells Fargo
and
U.S. Bancorp.
Some of these sales, including Wells Fargo, were poorly timed given subsequent rallies in the shares. Berkshire Hathaway has accumulated a $3 billion holding in Citigroup.
Morgan Stanley might appeal to Buffett because the firm’s main driver is wealth management, making its earnings less vulnerable to the economy than those of banks. Morgan Stanley stock, at around $85, trades for 14 times projected 2024 earnings, a premium to the group, and yields about 4%.
Shares of BlackRock, the biggest global investment manager by assets, trade at around $781, or 20 times estimated 2024 earnings, yielding 2.5%. BlackRock is well managed under CEO Larry Fink with a leading position in exchange-traded funds and bonds. It ranks highly in the industry in attracting net inflows of investment money.
Buffett has a value bent, however, and BlackRock stock might be too rich for him. Buffett tends to pay 15 times earnings or less for shares.
Chubb is one of the largest and best-run property and casualty insurers. Buffett knows it well, given Berkshire’s 50-plus year involvement in the industry. Chubb stock at around $248 trades for 11 times projected 2024 earnings.
Other top-25 financials look less likely targets for Buffett. Berkshire already owns
Visa,
Citigroup,
and
Moody’s.
Buffett sold JPMorgan, Goldman, and Wells Fargo shares in recent years, and may not want to buy them back at a higher price.
S&P Global is in the same business as Moody’s—credit ratings—and is richly valued at about 30 times earnings. That might be too rich for Buffett.
Progressive is the arch rival of Berkshire’s Geico, the auto insurer. Buying the stock would highlight Progressive’s success against Geico, making that a less likely Berkshire Hathaway purchase.
And Buffett is no fan of private equity, so he probably wouldn’t want to buy industry leader Blackstone.
Write to Andrew Bary at andrew.bary@barrons.com
