Berkshire Hathaway
has kept secret a billion-dollar stock investment, prompting speculation about what shares the conglomerate bought.
When the company (tickers: BRK. A, BRK. B) disclosed its U.S. equity holdings as of Sept. 30 via its quarterly 13-F filing with the Securities and Exchange Commission, it said it had asked the regulator for confidential treatment for one or more stocks. It was Berkshire’s first such request since late 2020, when Berkshire was accumulating
Chevron
(CVX) and
Verizon Communications
(VZ).
Barron’s best guess is that assuming Berkshire bought just one stock, the target may be Morgan Stanley (MS), BlackRock (BLK), or
Chubb
(CB).
The stock is likely a financial company because Berkshire disclosed in its 10-Q that its cost basis in financials went up in the third quarter by about $1.2 billion, while its cost basis in other groups of stocks declined. The filing shows Berkshire didn’t add to its existing holdings of financial stocks, indicating it moved into a new company.
We’re assuming Berkshire bought a top 25 financial company by market value to allow CEO Warren Buffett to more easily accumulate a position of as much as $5 billion. That would be big enough to move the needle at Berkshire, which has an equity portfolio of about $350 billion and a market value of $780 billion.
Our guess is that Buffett may have begun accumulating the stock late in the third quarter as the market declined and may want to finish up the buying in the current quarter. Keeping the identity of the target secret would allow him to buy the stock without other investors pushing the price higher as they sought to mimic his moves.
It is notable that Buffett is back buying financials after Berkshire dumped the group wholesale in recent years, including stakes in
JPMorgan Chase
(JPM) and
Goldman Sachs
(GS), not to mention longtime holdings in
Wells Fargo
(WFC) and
U.S. Bancorp
(USB). Some of these sales, including Wells Fargo, were poorly timed given subsequent rallies in the shares.
Morgan Stanley might appeal to Buffett because the firm’s main driver is wealth management, making its earnings less volatile than those at rival Goldman Sachs, and less vulnerable to the economy than those of banks. Morgan Stanley trades for around 11 times projected 2024 earnings per share, a premium to the group, and yields more than 4%.
Shares of BlackRock, the No. 1 global investment manager by assets, are about flat this year and now trade for around 19 times forward earnings, yielding nearly 3%. BlackRock is well managed under CEO Larry Fink with a leading position in exchange-traded funds and bonds. It ranks well in the industry in terms of its ability to attract net inflows of investment money.
Chubb is one of the largest and best-run property and casualty insurers. Buffett undoubtedly knows it well given Berkshire’s 50-plus year involvement in the industry.
Other top-25 financials look like unlikely targets for Buffett. Berkshire already owns
Visa
(V),
Mastercard
(MA),
Bank of America
(BAC),
American Express
(AXP),
Citigroup
(C), and Moody’s (MCO). Buffett sold JPMorgan, Goldman, and Wells Fargo in recent years and may not want to buy them back at a higher price.
S&P Global (SPGI) is in the same business as Moody’s—credit ratings— and is richly valued at about 30 times earnings. Buffett doesn’t like to pay up for stocks.
Progressive (PGR) is the arch rival of Berkshire’s Geico, the auto insurer. Buying the stock would highlight Progressive’s success against Geico, making that less likely.
And Buffett is no fan of private equity, so he probably wouldn’t want to buy industry leader Blackstone (BX).
The mystery holding could be revealed at any time if Berkshire takes its position past the 5% mark that would require disclosure. If it doesn’t, investors can wait for Berkshire’s next 13-F filing, due in mid February.
Write to Andrew Bary at [email protected]
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