Berkshire Hathaway's secretive acquisition, undertaken during the latter half of 2023, is poised to be unveiled with the upcoming disclosure of its first-quarter equity holdings this Wednesday, after market close.
Anticipation is high, with industry insiders and analysts, including Barron's, suggesting the investment is likely a substantial stake in a financial entity. Speculations hint at potential candidates such as BlackRock, Morgan Stanley, or Chubb, though none were confirmed at Berkshire’s annual meeting on May 4 by CEO Warren Buffett.
An increase of approximately $5 billion in the cost basis of Berkshire's financial stock holdings, noted over the previous three quarters, aligns with this theory, despite no significant financial stock acquisitions being reported in the third and fourth quarters of 2023. This new addition, while notable, represents a modest increment within Berkshire's sprawling $370 billion equity portfolio, dwarfed further by its market valuation nearing $890 billion. Among its diverse holdings, Apple stands out with a staggering $145 billion investment.
Berkshire's approach to its U.S. stock holdings, alongside other institutional investors, is routinely detailed in quarterly 13-F filings to the Securities and Exchange Commission. Notably, Berkshire’s recent filings have included requests for confidential treatment— a practice more commonly utilized by Berkshire than other major investors, reminiscent of its discreet buying of Chevron and Verizon shares in late 2020.
The forthcoming 13-F filing, detailing holdings as of March 31, is expected to finally reveal this mystery stock. Should this occur, it would likely prompt amendments to Berkshire's previous filings from 2023 to incorporate this new asset.
In assessing potential candidates, Morgan Stanley emerges as a strong contender. With a solid foundation in wealth management, Morgan Stanley’s financial stability is less tied to economic fluctuations compared to traditional banks. Its shares are currently valued at approximately $98, reflecting a 14 times multiple on projected 2024 earnings and offering a yield exceeding 3%.
Meanwhile, BlackRock stands out as the world’s largest investment manager by assets, trading at about $797 per share or 19 times expected 2024 earnings, with a 2.5% yield. Under CEO Larry Fink, BlackRock has dominated the ETF and bond markets. However, Buffett’s preference for more reasonably priced investments—typically stocks trading at or below 15 times earnings—might deter him from BlackRock.
Chubb, recognized as a premier operator in the property and casualty insurance sector, also presents a viable option. Trading at approximately $254, or 12 times projected 2024 earnings, it is well within Buffett's price range. Similarly, American International Group (AIG), with shares around $79 or 11 times expected earnings, could be another insurance-related acquisition.
Charles Schwab, with its stock trading around $75 and valued over 20 times projected 2024 earnings, is another candidate. Despite its market lag in recent years, Schwab maintains a strong position in the online brokerage industry, leading some analysts to speculate about its potential as Berkshire’s hidden gem.
