Warren Buffett's Next Big Buy

The StressTest column appears every Thursday on Fool.com. Check back weekly and follow @TMFStressTest.

"Confidential information has been omitted from the public Form 13F report and filed separately with the U.S. Securities and Exchange Commission."

That's the line that careful readers may have found in Berkshire Hathaway's (NYSE: BRK-B  ) 13F filing -- the SEC filing that discloses the company's major stock positions. Mysterious, right? So very un-Buffett. Unless, maybe, it isn't.

This isn't a line that commonly shows up in a Berkshire 13F, but it's not something we haven't seen before. In the August 2011 filing, there was a very similar line: "Confidential information has been omitted from the Form 13F and filed separately with the Commission."

That timing should set off some bells for the close Berkshire watchers out there. It was just three months after that filing that Buffett revealed a huge position in IBM. The size of the IBM stake quickly vaulted it to among Berkshire's largest holdings, and is now mentioned by Buffett in the same breath as Wells FargoCoca-Cola, and American Express when he talks about Berkshire's "Big Four" investments.

Flip back to today's filing, and the logical conclusion would be that Buffett is once again building a large stake in a new investment, and is trying to keep quiet about it to keep the copy-cat investors away.

There's plenty of room to speculate on what Buffett might be buying now. We could see him surprise the peanut gallery again by going with a name from the tech arena or another industry seen as outside of his normal strike zone. However, if I were betting on it, due to the overwhelming odds, I'd wager that the new addition will be either a financial or consumer goods company. Consider that, with IBM as the exception, eight of Berkshire's nine largest stock holdings are in one of those two categories. And depending on how you want to treat DIRECTV -- not a Buffett pick, by the way -- we could say nine of 10.

If we're looking at financials, I wouldn't be too surprised if Discover  (NYSE: DFS  ) made it into the portfolio. This is a business with a strong franchise and a record of strong equity returns. And, when we consider that American Express has long been a Buffett favorite, and both Visa and Mastercard can already be found in the Berkshire portfolio, this would essentially complete Buffett's set of credit card trading cardsJPMorgan  (NYSE: JPM  ) is another possibility in the finance sector. Buffett personally owns shares, and has spoken out many times in favor of the bank's CEO Jamie Dimon. A Berkshire purchase could be slightly irksome for Buffett from a conflict-of-interest angle if he hasn't sold his shares, but I don't think that counts it out.

Consumer goods stocks aren't trading at the discounts that are available in the financials sector, but that doesn't necessarily preclude a Berkshire buy there. After all, the Heinz takeout wasn't at a bargain-basement price. If Buffett took a big position in a company in this industry, I'd expect that it'd be "obvious" -- that is, a well-recognized company with massive brand power and a record of stellar returns. General Mills  (NYSE: GIS  ) and Clorox  (NYSE: CLX  ) are two quality picks that would make sense for Buffett to load up on. Neither is the next quick 10-bagger, but both are quality, stable companies that would be very much at home among Berkshire's other top holdings -- not to mention produce solid returns for Berkshire shareholders.

But should we even bother guessing?
As much fun as I have trying to guess at Buffett's next big stock buy or acquisition (don't lie, you love it too!), it's worth wondering what, if anything, we get out of this guessing game. There's no prize for picking Buffett's next buy before he does. And, if the Buffett buy is a full takeover of a company you own, then the outcome is a booby-prize that turns long-term investors into short-term shareholders and takes a good company off the market.

On the other hand, the game itself can be instructive. Buffett has been one of the most successful investors of our time, so it's hard to say that it's a bad idea to put our Buffett glasses on and try to look at the market as Buffett might. 

I'll go on the record saying that, when Berkshire does reveal the position, it's likely that my guesses above will probably prove to be wrong. But in thinking through what Buffett might look to buy, I came up with a few more stocks to add to my own watchlist.

So, with that, I'll kick it over to you: What do you think Buffett might be buying? As you think that through, bear in mind that key components to Buffett's investment process are:

  • Simple, understandable, businesses within his circle of competence.
  • A track record of strong earnings and returns on equity.
  • A "fair" price (meaning that he's careful not to overpay, but isn't tethered solely to bargain valuations).

One Stock That Buffett Can't Buy... But You Can
The price of becoming the world's greatest investor is that Warren Buffett can no longer make many of types of investments that made him rich in the first place. Find out about one such opportunity in "The Stock Buffett Wishes He Could Buy." The free report details a sector of the economy Buffett's heavily invested in right now, and exactly why he can't buy one attractive company in that sector. Click here to keep reading. 


Read/Post Comments (29) | Recommend This Article (85)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 16, 2013, at 11:38 AM, anrbfan wrote:

    Don't be too quick to follow Buffett's lead. In the 1987 Stock Market crash, the fool LOST $7 BILLION in ONE day!

  • Report this Comment On August 16, 2013, at 11:59 AM, MaximeV wrote:

    He might be loading on JPM for the following reasons:

    The ratio of debt over equity is 1.9, less than 2.

    There were earnings in each of the past ten years. Dividend has been paid since 1827. Earnings growth has been 93% in the past ten years. There is a moderate ratio of price to assets of 11.99

    It is currently ranked first as the cheapest defensive stock on LittleWarren.com

  • Report this Comment On August 16, 2013, at 1:34 PM, slash32is4 wrote:

    who didnt lose money in the 1987 crash... I was 3 years old and I think I lost money

  • Report this Comment On August 16, 2013, at 5:26 PM, NickD wrote:

    Buffett can buy me 217k times

  • Report this Comment On August 16, 2013, at 6:08 PM, Seanickson wrote:

    Well the largest increase in cost basis in the last 6 months was in the commercial, industrial, and other category at a roughly $4 billion increase. Thats the category to look at.

  • Report this Comment On August 16, 2013, at 6:21 PM, sksaxena wrote:

    When you look at the performance of BRK-B with WFC, AXP and KO, BRK-B comes on top so what are the secret stocks that are performing better than WFC, AXP and KO?

  • Report this Comment On August 16, 2013, at 7:16 PM, CoreAndExplore wrote:

    @slash32is4 - to answer your (rhetorical) question: Paul Tudor Jones. Still, you've got a valid point since Buffett is primarily an investor, as opposed to a speculator.

  • Report this Comment On August 16, 2013, at 7:21 PM, CoreAndExplore wrote:

    @sksaxena - well, for starters, I'd venture it probably has something to do with all of the privately held (so to speak) holdings that Berkshire allows to be more or less managed autonomously; basically, the business segment that isn't part of the equity portfolio. Maybe I misunderstood your question.

  • Report this Comment On August 16, 2013, at 10:22 PM, skypilot2005 wrote:

    On August 16, 2013, at 11:38 AM, anrbfan wrote:

    Don't be too quick to follow Buffett's lead. In the 1987 Stock Market crash, the fool LOST $7 BILLION in ONE day!

    :)

    http://finance.yahoo.com/news/further-review-buffetts-having...

    On further review...Buffett's having a bad run

    By Alex Crippen

    8/16/13

    “When I first saw the headline " Breaking Buffett: The Oracle has underperformed " on CNBC.com, I was skeptical.

    After years of following him for the " Buffett Watch " blog, I've seen quite a few "Has Buffett Lost His Touch?" stories and posts over the years, like these from 2008, 2009, 2010, 2011, 2012 and2013.

    In 2009, investor Doug Kass saw " the end " of Buffett and CNBC'sJim Cramer strongly questioned Buffett's call to buy American stocks near the height of the credit crisis.

    Thursday's "Breaking Buffett" piece detailed an analysis by Bespoke Investment Group showing Berkshire's top 10 stock holdings are up an average of 0.7 percent for the third quarter, lagging the benchmark S&P 500 index's 4.9 percent gain.

    But that's just six weeks, an insignificant time span in Buffett's long-term investment world view. I thought that stepping back a bit would produce a different picture.

    (See more from CNBC: Berkshire Hathaway's 15 Biggest Stock Holdings)

    So I looked at those stocks year-to-date, and found, again, they underperformed the S&P. It's closer, but Berkshire's top 10 averaged a 14.9 percent gain vs the S&P's 18.2 percent advance. Weighting the average by the market value of the positions in Berkshire's portfolio reduced its gain to 13.7 percent.

    Over 12 full months, the same story. Berkshire's stocks are up 17.7 percent (just 12.7 percent weighted) while the S&P is up 20 percent.

    It's true. Buffett's stocks have been falling behind the market.

    Three of Berkshire's major holdings, Wells Fargo (WFC), Coca-Cola (KO) and American Express (AXP), have been in the portfolio for years. Wells and AmEx have been spectacular performers over the past twelve months as financials rebounded from the credit crisis. Coke has been roughly flat.

    It's Buffett's most recent big stock pick that's trailing the pack.

    IBM (IBM) is up 7.2 percent since the end of 2011's third quarter, when Buffett finished accumulating the bulk of what is now a $12.6 billion stake. Not bad, but well short of the S&P's 49 percent surge over the same period.

    Even by Buffett's favorite metric, book value, a measurement of the value of assets on a company's balance sheet, Berkshire is lagging the S&P.”

    I’ll pick my own stocks, thank you………

    Sky

    Full disclosure:

    I do subscribe to the Fool's Stock Advisor.

  • Report this Comment On August 16, 2013, at 11:18 PM, SomersetSmile wrote:

    Mr. Buffett like to pick areas out of favor, so I would expect he would pick something in the housing/building niche, like USG that he already holds a position in. When he originally started buying his position 7 years ago, he signed an agreement limiting him to a minority interest in the company. Well the 7 years are up, so it might he is buying an controlling interest.

  • Report this Comment On August 17, 2013, at 5:48 AM, AnsgarJohn wrote:

    Oracle seems to score quite high on Buffett screens. Technology, but with a moat

  • Report this Comment On August 17, 2013, at 6:58 AM, AnsgarJohn wrote:

    @anrbfan Buffett likes it when there is a panic in the market and stock prices go down dramatically. Try to understand why that is.

  • Report this Comment On August 17, 2013, at 5:34 PM, xxbrainxx wrote:

    Oracle and IBM Hmmmm

  • Report this Comment On August 17, 2013, at 7:54 PM, BentMike wrote:

    Got to answer that 1st anbrfan post.

    BH did not lose $7B because they did not sell low. The value of the portfolio/stock may have lost value, but that is a very different thing.

    It is also worth noting that Buffet is also a better investor now than 26 years ago.

  • Report this Comment On August 18, 2013, at 12:40 PM, larchmont1 wrote:

    Maybe he buys a big pipeline company. EPD or KMI/KMP. Easy to understand cash machines, like the railways. They are not, however, historically cheap; they are not on-sale. Might, however, complement Berkshire's Mid American power business and its purchase of NV Energy.

  • Report this Comment On August 18, 2013, at 1:08 PM, crca99 wrote:

    He'll buy North Dakota. Isn't that where the Bakken field is? He believes the US will be the top natural gas, coal, and oil exporter within ten years, and he's building the whole supply chain to do it.

  • Report this Comment On August 19, 2013, at 1:40 PM, StockGamingCom wrote:

    You didn't mention AIG and Citigroup, both of which of churning and growing profits and both of which are under-priced.

  • Report this Comment On August 19, 2013, at 4:11 PM, sagitarius84 wrote:

    Warren Buffett likes to buy strong brand names that have pricing power, and which shower their owners in cash through rising dividends over time:

    http://www.dividendgrowthinvestor.com/2013/02/warren-buffett...

  • Report this Comment On August 20, 2013, at 10:42 AM, AnsgarJohn wrote:

    Markel = Double float or float squared?

  • Report this Comment On August 20, 2013, at 1:11 PM, profits4fun wrote:

    Apple.... The fruity company is on sale and still has rock solid fundamentals.

  • Report this Comment On August 23, 2013, at 1:09 PM, FKash wrote:

    KODAK - cheap coming out of Bankruptcy. Started the digital photography age. Has a recognizable brand name.

  • Report this Comment On August 23, 2013, at 10:41 PM, 4marchjohn wrote:

    Watch the fireworks when the NFL-DirectTV contract expires.

  • Report this Comment On August 24, 2013, at 6:46 PM, redickson99 wrote:

    How about Colgate as a Buffet buy. It just keeps ticking along turning out increasing sales in its overseas business. Reason not to buy is current PE.

  • Report this Comment On August 25, 2013, at 5:46 AM, brokerch wrote:

    i have been in ibm since 1993 i bought most of my stock when ibm hit 40 then i road it all the way back. and ibm made me able to buy all the things i wanted. at one time i held over 4000 shares with there splits and dividendsl i have 17 shares

    left but they just raised there dividend again to $.95 a share. when i first bought in 1993. if i remember correctly they had suspended there dividend . im starting my new move on ibm but this time i wil hold. thanks, god bless america and our warriors george

  • Report this Comment On August 25, 2013, at 12:24 PM, jax1122 wrote:

    THINK..... Natural Gas,... we have an unlimited amount... China... comes here and drills, sends the Gas to there home starts Natural Gas cars, heats there homes builds fertilizer plants/plastics, ect.... and here we sit... with our thumbs up our &&&&*(^%4, are US is so STUPID......

  • Report this Comment On August 27, 2013, at 12:04 AM, RedScourge wrote:

    Maybe he's going to shock the world and buy precious metals miners. Probably a bank though.

  • Report this Comment On August 27, 2013, at 2:28 AM, HuiyiChen wrote:

    Fashion, say, Michael Kors? That'd be interesting

  • Report this Comment On August 27, 2013, at 10:20 PM, JINNMINER wrote:

    Buffet is in the verge of selling America to Chinese. Hold on to your cash, don't buy in to fools blogs.

  • Report this Comment On October 04, 2013, at 2:39 PM, Bootlegger22999 wrote:

    A buyout of or large position in CLX or GIS wouldn't surprise me

Add your comment.

DocumentId: 2597932, ~/Articles/ArticleHandler.aspx, 4/19/2014 9:10:33 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement