Speculation Builds on Warren Buffett's New Secret Stock

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Speculation Builds on Warren Buffett's New Secret Stock
Credit: © Reuters.
(Updated - November 17, 2023 1:05 PM EST)

In its latest quarterly 13F, released Tuesday evening, Warren Buffett's Berkshire Hathaway (NYSE: BRKa ) (BRK-A) highlighted that it has added at least one new stock in the third quarter and is not ready to tell the world about it just yet. Berkshire used what is known as confidential treatment with the SEC for the new stock position or positions. This will allow Berkshire to build the position without worrying about Buffett disciples bidding the stock up.

"The Manager has omitted from this public Form 13F one or more holding(s) for which it is requesting confidential treatment from the U.S. Securities and Exchange Commission pursuant to section 13(f) of the Exchange Act and rule 24b-2 thereunder," the filing reads in legalese.

This is the first time since late 2020 that Berkshire has used the confidential treatment rule. At that time, the fund was confidentially accumulating stock in Chevron (NYSE: CVX ) and Verizon (NYSE: VZ ).

Of course, this has led to all kinds of speculation about what the new Buffett stock or stocks are.

Barron's believes Berkshire added a financial stock, noting that in its 10-Q the firm revealed that its financial stock cost basis increased by approximately $1.2 billion during the third quarter while its cost basis in other stock groups fell. The new 13F didn't show any additions to its current holdings of financial stocks, suggesting it is the new stock(s) that led to the increase.

The fund already owns a host of financial names, so that automatically rules them out as the new mystery position.

Berkshire currently owns financials Bank of America (NYSE: BAC ), American Express (NYSE: AXP ), Visa (NYSE: V ), Mastercard (NYSE: MA ), Capital One (COF), Citigroup (C), Ally Financial (NYSE: ALLY ), and Moody's (NYSE: MCO ) in the sector.

In the past, they have owned Bank of New York (BK), JP Morgan (JPM), Goldman Sachs (GS), U.S. Bankcorp (USB), and Wells Fargo (NYSE: WFC ), among others.

While it is possible that Berkshire got back into one of these names, it is more likely they are looking elsewhere.

The Barron's writer speculated that Berkshire would likely tackle a top 25 financial company. If you rule out the current and past financial stocks owned, they came up with a list of Morgan Stanley (MS), BlackRock (NYSE: BLK ), and Chubb (NYSE: CB ).

They argue that Morgan Stanley may be a better fit versus rival Goldman Sachs given its lucrative wealth management business, which also makes earnings less volatile. Meanwhile, BlackRock is the top global investment manager by assets. Lastly, Buffett knows the insurance industry well and Chubb is one of the largest and well-managed property and casualty insurers.

Analysts who cover Berkshire agree with Barron's assessment that the firm likely added a financial stock, but they don't necessarily think it has to be a top 25 name.

"I think the market cap cut-off for a Berkshire would be $40 billion," analysts exclusively told StreetInsider.com. "This means they could easily build a 10% position."

Discussing possible financial stocks that would fit Berkshire's portfolio, analysts highlighted several names.

First, they like the idea that Berkshire could get back into Goldman Sachs, even though they have owned it in the past. Buffett famously bailed out Salmon Brothers in the 1980s and invested in Goldman during the 2008 financial crisis, they highlight. Shares of Goldman Sachs are down 1% year-to-date, versus the 17% move higher in the S&P 500 .

The Charles Schwab Corporation (NYSE: SCHW ), a stock that has come under pressure amid the Fed's steady path of rate hikes, is another name that analysts think could attract Berkshire. Schwab shares are down 32% year-to-date.

In the insurance space, while Chubb could make sense, analysts like another stock even more for Berkshire. That insurance stock is AIG (NYSE: AIG ). They highlight that AIG is a Berkshire re-insurance partner and its stock has underperformed, up only 2% on the year.

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