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Warren Buffett’s “secret portfolio” includes 90 securities, five of which were beautiful stocks acquired during the quarter ending in March.
CEO of Berkshire Hathaway (BRK. A) (BRK. B) Warren Buffett has consistently outperformed Wall Street’s benchmark index, the S&P 500, for nearly six decades.
While the S&P 500 has delivered a total return of about 35,000%, including dividends, since the mid-1960s, Berkshire Hathaway’s Class A shares (BRK.A) have had extraordinary total returns since the mid-1960s of more than 5,060,000% without any dividend being paid over the same period. .
Given Buffett’s remarkable track record, 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.
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 business, but the acquisition also included a specialist 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 does not directly manage NEAM’s investments, as he does Berkshire Hathaway’s $380 billion portfolio, the 90 securities in NEAM’s portfolio are ultimately owned by Berkshire Hathaway. This acquisition 26 years ago has given Buffett a “secret” portfolio of $646 million.
This hidden portfolio includes many exchange-traded funds as its largest holdings and dozens of well-known companies. The five notable stocks were added to this ‘secret’ portfolio in the first quarter. Let’s take a look at them.
AT&T and Verizon
Despite Warren Buffett’s recent distaste for older telecom companies, NEAM’s 13F filing reveals purchases of 22,235 shares of AT&T and 14,175 shares of Verizon Communications (VZ) in the March quarter.
Older telecom carriers like AT&T and Verizon have significantly underperformed in the current bull market due to rising interest rates, which increase the costs of refinancing and closing deals, and concerns highlighted in a report from the Wall Street Journal (WSJ ) about lead-coated cables that involve possible cleanup costs and care obligations.
AT&T has made substantial progress in reducing its net debt, which has fallen by more than $40 billion to $128.7 billion since the WarnerMedia divestiture in April 2022. Conversely, Verizon has not yet significantly reduced its outstanding debt.
Both AT&T and Verizon are benefiting from the 5G revolution. Upgrading their networks to support 5G speeds has resulted in increased data consumption by wireless customers and a steady increase in net broadband additions.
In the first quarter, Verizon added 389,000 net broadband customers, while AT&T added at least one million net broadband customers for six consecutive years.
Johnson & Johnson
Another notable addition to Warren Buffett’s “secret” portfolio is healthcare conglomerate Johnson & Johnson (JNJ), with 2,225 shares purchased in the quarter ending in March. Buffett once owned a significant stake in Berkshire Hathaway and reduced his stake after J&J used its shares as collateral in its 2012 acquisition of Synthes.
J&J’s stock has underperformed in the current bull market, mainly due to legal issues surrounding the discontinuation of its talc-based baby powder. The company faces approximately 100,000 lawsuits claiming the powder causes cancer, with previous settlement attempts unsuccessful.
Despite these challenges, J&J has 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 debt and cover settlement costs 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 prominent Berkshire Hathaway holder, Buffett downgraded his position after the bank’s illicit accounts scandal, which damaged its reputation.
Moreover, Wells Fargo is benefiting from the fastest rate hike cycle in forty years. Higher interest rates have increased net interest income for banks with floating rate loans.
Chevron
Energy giant Chevron (CVX) is the fifth notable stock to be acquired for Warren Buffett’s $646 million secret portfolio. Although Berkshire Hathaway sold more than three million shares of Chevron in the quarter ending in March, New England Asset Management (NEAM) added 1,900 shares to its existing position.
Chevron will also acquire Hess in a $53 billion stock deal. If approved, Chevron will gain a net 465,000 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 preferred portfolio by adding world-class assets.”
Chevron’s flexible balance sheet supports major acquisitions and a robust dividend payout, broadening its appeal in the energy sector.
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