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Warren Buffett’s “secret portfolio” includes 90 securities, with five magnificent stocks acquired during the quarter ending in March.
Berkshire Hathaway (BRK. A) (BRK. B) CEO Warren Buffett has consistently outperformed Wall Street’s benchmark index, the S&P 500, for nearly six decades.
While the S&P 500 has achieved an approximate 35,000% total return, including dividends, since the mid-1960s, Berkshire Hathaway’s Class A shares (BRK. A) have delivered an extraordinary aggregate gain of over 5,060,000% without paying any dividend over the same period.
Given Buffett’s remarkable track record, it’s no surprise that investors eagerly anticipate the quarterly release of Berkshire Hathaway’s Form 13F filing with the Securities and Exchange Commission.
Warren’s Treasure Vault After New Additions
In 1998, Berkshire acquired General Re in a $22 billion deal. The main attraction was General Re’s reinsurance operations, but the acquisition also included a specialty investment firm, New England Asset Management (NEAM). When the deal closed, Berkshire Hathaway became the new owner of NEAM.
By the end of the March quarter, NEAM had approximately $646 million in assets under management (AUM), necessitating a 13F filing like other institutional investors.
Although Warren Buffett doesn’t directly manage NEAM’s investments as he does with Berkshire Hathaway’s $380 billion portfolio, the 90 securities in NEAM’s portfolio are ultimately owned by Berkshire Hathaway. This acquisition from 26 years ago has given Buffett a $646 million “secret” portfolio.
This hidden portfolio includes many exchange-traded funds as its largest positions and dozens of well-known companies. The five notable stocks were added to this “secret” portfolio in the first quarter. Let’s take a sneak peek at them.
AT&T and Verizon
Despite Warren Buffett’s recent aversion to legacy telecom companies, NEAM’s 13F filing reveals purchases of 22,235 shares of AT&T and 14,175 Verizon Communications (VZ) in the March quarter.
Legacy telecom providers like AT&T and Verizon have significantly underperformed in the current bull market due to rising interest rates, which increase refinancing and deal-making costs, and concerns highlighted in a Wall Street Journal (WSJ) report about lead-sheathed cables posing potential cleanup costs and health liabilities.
AT&T has made substantial progress in reducing its net debt, which has decreased by over $40 billion to $128.7 billion since the divestment of WarnerMedia in April 2022. Conversely, Verizon has yet to reduce its outstanding debt significantly.
Both AT&T and Verizon are capitalizing on the 5G revolution. Upgrading their networks to support 5G speeds has resulted in increased data consumption from wireless customers and a steady rise in net broadband additions.
In the first quarter, Verizon added 389,000 net broadband customers, while AT&T has achieved at least one million net broadband customer additions for six consecutive years.
Johnson & Johnson
Another notable addition to Warren Buffett’s “secret” portfolio is health care conglomerate Johnson & Johnson (JNJ), with 2,225 shares purchased in the quarter ending in March. Once a significant holding of Berkshire Hathaway, Buffett reduced his stake after J&J used its stock as collateral in the 2012 acquisition of Synthes.
J&J’s stock has underperformed in the current bull market, mainly due to legal issues surrounding its discontinued talcum-based baby powder. The company faces approximately 100,000 lawsuits alleging the powder causes cancer, with previous settlement attempts unsuccessful.
Despite these challenges, J&J holds the highest possible credit rating (AAA) from Standard & Poor’s, shared by only one publicly traded company. This rating reflects S&P’s confidence in J&J’s ability to service its debts and cover settlement expenses with cash or operating cash flow.
Wells Fargo
Wells Fargo (WFC) is the fourth notable addition to Warren Buffett’s hidden portfolio in the first quarter, with 6,830 shares acquired.
Once a top Berkshire Hathaway holder, Buffett reduced his position following the bank’s unauthorized account scandal, which damaged its reputation.
Additionally, Wells Fargo benefits from the fastest rate-hiking cycle in four decades. Higher lending rates have increased net interest income for banks with variable-rate loans.
Chevron
Energy giant Chevron (CVX) is the fifth notable stock being acquired for Warren Buffett’s $646 million secret portfolio. Although Berkshire Hathaway sold over three million shares of Chevron in the quarter ending March, New England Asset Management (NEAM) added 1,900 shares to its existing position.
Chevron will also acquire Hess in a $53 billion all-stock deal. If approved, Chevron will gain 465,000 net acres in the Bakken Shale and increase its oil-equivalent production in Guyana.
Mike Wirth, CEO of Chevron, said, “This combination positions Chevron to strengthen our long-term performance and further enhance our advantaged portfolio by adding world-class assets.”
Chevron’s flexible balance sheet supports major acquisitions and a robust dividend payout, enhancing its appeal in the energy sector.
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