For the past 58 years, Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%) CEO Warren Buffett has been dazzling Wall Street with his investing prowess. Although the Oracle of Omaha is far from perfect -- Berkshire is currently taking a bath on its Kraft Heinz stake -- he's led his company's class A shares (BRK.A) to an annualized return of nearly 20%. Over 58 years, this works out to an aggregate return of 4,426,409%, as of the closing bell on Nov. 27, 2023.
Doubling-up the annualized total return of the S&P 500, including dividends, over a nearly six-decade stretch is going to get a money manager noticed; and it's precisely why investors wait on pins and needles to discover what the Oracle of Omaha and his team have purchased and sold on a quarterly basis.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
Despite being net-sellers of equities, Buffett and his team are making selective buys
November 14 represented the deadline for money managers with at least $100 million in assets under management to file Form 13F with the Securities and Exchange Commission (SEC). This filing allows investors an under-the-hood look at what the most-successful fund managers have been buying and selling during the previous quarter.
Based on Berkshire Hathaway's last four quarterly reports, we know the Oracle of Omaha and his top investment aides, Ted Weschler and Todd Combs, have been selling more stock than they've purchased, to the tune of $38.3 billion since Oct. 1, 2022.
During the September-ended quarter, Buffett and his team bid adieu to an assortment of longtime, brand-name holdings, including auto stock General Motors, healthcare conglomerate Johnson & Johnson, and consumer staples stock Procter & Gamble, to name a few. Though these holdings didn't account for a sizable percentage of Berkshire's portfolio, they'd all been fixtures for more than a decade.
On the flipside, Buffett and his investing lieutenants have been carefully dipping their toes in the water with a handful of companies. For instance, satellite-radio operator Sirius XM Holdings (SIRI) became the latest value stock to enter Berkshire Hathaway's portfolio. Sirius XM operates as a legal monopoly, and it's generated more than 77% of its revenue this year (through Sept. 30) from subscriptions. With less of a reliance on advertising than terrestrial and online radio operators, Sirius XM is in far better shape to ride out a turbulent economic climate.
However, Berkshire Hathaway's 13F doesn't tell the full story of what the Oracle of Omaha and his investment team have been up to. That's because Buffett's company filed an amendment to its 13F that requested confidential treatment for one of more of its holdings.
Put another way, Buffett and his aides are building up a position in one or more publicly traded companies right now and they don't want to disclose which company or companies they are to avoid having the share price climb as other investors pile in. It's a request the SEC has granted Buffett and his company before.
Image source: Getty Images.
Is this the confidential stock Warren Buffett is secretly piling into?
As of right now, there's not a single clue that points to any specific stock on the radar of Warren Buffett, Ted Weschler, or Todd Combs.
However, there are well-defined traits this trio looks for when making a substantial investment. Buffett and his team prefer brand-name businesses with established management teams that have sustained long-term catalysts and moats within their respective industries.
Additionally, Warren Buffett is a stickler for value. He wants to own great businesses at a fair price, and he's more than willing to sit on Berkshire Hathaway's ever-growing cash pile until these perceived-to-be great businesses fall to a valuation that the Oracle of Omaha deems fair. Generally speaking, Buffett will aim to buy into time-tested businesses with high-single-digit or low-double-digit forward price-to-earnings (P/E) ratios.
While there are dozens of businesses that would seemingly fit the bill, one former Berkshire Hathaway holding stands out for all the right reasons as the "confidential" stock that Buffett and his team may be buying: Canadian oil and gas stock Suncor Energy (SU -0.08%).
Energy stocks have represented a larger percentage of Berkshire Hathaway's invested assets over the past two years than at virtually any other time this century. Interestingly, just two energy stocks -- Chevron and Occidental Petroleum -- make up the more than 8% of Berkshire's invested assets, as of today.
One factor that makes oil and gas stocks so attractive right now is tight global crude oil supply. Three years of reduced capital investment by worldwide energy majors due to pandemic-related demand uncertainty, coupled with Russia's invasion of Ukraine, will make it difficult to meaningfully increase crude oil supply in the years to come. When the supply of a major commodity is constrained, it's not uncommon for the spot price of that commodity to move higher.
Another reason Suncor Energy could be Berkshire Hathaway's secret stock is its integrated operating model. Though oil and gas companies almost always generate their highest margins from their upstream (drilling) operations, integrated energy companies like Suncor also handle other aspects of the supply chain that can mitigate potential downside in the price of oil or natural gas. For instance, Suncor Energy operates refineries, which would benefit from lower input costs and rising consumer demand as crude prices fall. Integrated operators usually generate highly predictable operating cash flow, which allows for hearty capital-return programs.
SU Dividend Per Share (Quarterly) data by YCharts.
While Suncor more-than-halved its quarterly dividend during the COVID-19 pandemic, the company was just as quick to double its payout a little over a year later when the worst appeared to be over. Even with this red mark on Suncor's dividend resume, its quarterly payout has risen by roughly 30% over the trailing four years. Suncor's nearly 5% yield rivals the yield of most U.S. Treasury bonds and bills.
The final sign that Suncor Energy could be Berkshire Hathaway's mystery stock is its valuation. Suncor is currently valued at a mere 5 times forward-year earnings. That's just a third of its average forward P/E of 15 over the previous five years.
A great business with a high yield and a fair valuation makes Suncor Energy a stock that Warren Buffett and his investing lieutenants would absolutely love.
