It's been a news-packed two weeks for billionaire CEO Warren Buffett and his company, Berkshire Hathaway (BRK.A 0.43%)(BRK.B 0.76%).
On May 3, Berkshire held its annual meeting in Omaha in front of 40,000 attendees. Aside from unveiling Berkshire's first-quarter operating results, which showed a 10th consecutive quarter of net-selling activity by Buffett and his team, Berkshire's chief dropped the inevitable bombshell that he'll be stepping down as CEO by the end of the year and handing over the reins to predetermined successor Greg Abel.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
This Mecca of Wall Street events is being followed up by the release of Berkshire's Form 13F filing after the closing bell on May 15. A 13F provides a concise snapshot for investors of which stocks were purchased and sold by money managers with at least $100 million in assets under management in the most recent quarter.
But investors don't have to wait until after the bell for an under-the-hood look at what the Oracle of Omaha has been up to. Thanks to other required regulatory filings, we know that Warren Buffett purchased shares of eight stocks -- including two legal monopolies -- during the first quarter.
1. Sirius XM Holdings
The first stock Berkshire's CEO gobbled up in the March-ended quarter is satellite-radio operator Sirius XM Holdings (SIRI 3.82%). In instances where Berkshire Hathaway holds at least 10% of a public company's outstanding shares, it's required to file Form 4 with the Securities and Exchange Commission (SEC) detailing any purchasing or selling activity. Between Jan. 30 and Feb. 3, Buffett oversaw the purchase of 2,308,119 shares of Sirius XM stock.
NASDAQ: SIRI
Key Data Points
The primary lure for owning shares of Sirius XM has long been its legal monopoly status. Though it still fights for listeners with terrestrial and online radio providers, it's the lone company licensed for satellite radio. This unique position affords Sirius XM reasonably strong pricing power with its subscribers.
But what's arguably even more important when looking to the future is Sirius XM's revenue breakdown. Whereas traditional radio operators are almost wholly reliant on advertising to keep the lights on, Sirius XM brought in only 19% of its net sales in the first quarter from ads, with more than 77% coming from subscriptions.
Ad-driven models work fine during lengthy periods of economic expansion, but they can also lead to lean times when U.S. economic growth weakens. Sirius XM's predominantly subscription-fueled model ensures more consistent cash flow in any economic climate.
Buffett is also an unwavering value investor -- and Sirius XM checks all the right boxes. Its forward price-to-earnings (P/E) ratio of 7 is a stone's throw from an all-time low for the stock.
Image source: Getty Images.
2. Occidental Petroleum
With the exception of buying shares of his own company, Berkshire Hathaway, there's probably not a stock Warren Buffett has purchased more consistently since the start of 2022 than integrated oil and gas giant Occidental Petroleum (OXY +3.40%). Based on a Form 4 filing with the SEC, Buffett added 763,017 shares of Occidental, valued at roughly $35.7 million, on February 7.
The collective $27.6 billion the Oracle of Omaha had invested in Chevron and Occidental Petroleum, as of the closing bell on May 9, signals a strong belief that the spot price of crude oil will head higher. Multiple years of capital underinvestment by global energy majors during the COVID-19 pandemic, coupled with the ongoing war between Russia and Ukraine, creates a scenario where global oil supply is (potentially) constrained. When the supply of an in-demand commodity is tight, it often lifts the spot price of that commodity.
A higher spot price for crude oil would be particularly helpful to Occidental. Though a higher price effectively benefits all integrated energy companies, Occidental generates an outsized percentage of its net sales from its upstream drilling segment. In other words, a rising oil price disproportionately benefits the company, while a declining price can lead to outsized struggles.
Berkshire's head honcho is likely also attracted to Occidental Petroleum's reasonably inexpensive valuation amid a historically pricey stock market. Keeping in mind that upstream drilling profits are (pardon the pun) fluid, shares of Occidental can be picked up right now for roughly 13 times forward-year earnings.
NASDAQ: VRSN
Key Data Points
3. VeriSign
The other legal monopoly that the Oracle of Omaha was a buyer of during the March-ended quarter is domain-name registry services provider VeriSign (VRSN 2.19%). While Buffett made a number of purchases of VeriSign in December, Form 4s show that 18,423 shares were scooped up during the first two trading days of January.
VeriSign's monopoly status ties into its role as the registration rights leader for .com and .net domains, as granted by the Internet Corporation for Assigned Names and Numbers (ICANN). Even though the corporate rush to register domain names isn't what it was during the internet heyday, being the registry service behind .com and .net domains affords VeriSign exceptional pricing power.
Something else investors are bound to notice about VeriSign is its juicy operating margin. This is a relatively low-cost operating model, with minimal infrastructure expenses and fees paid to ICANN. Its operating cash flow tends to be highly predictable, with an operating margin that regularly hovers in the mid-to-high 60% range.
VeriSign also checks the important "set-it-and-forget-it" box for Warren Buffett. Businesses that generate recurring revenue without having to do much, if any, legwork, are the type of company Buffett wants to own.
OTC: MSBHF
Key Data Points
No.'s 4-8: Mitsubishi, Itochu, Mitsui, Marubeni, and Sumitomo
Last but certainly not least, regulatory filings in mid-March show that Berkshire Hathaway increased its respective stakes by around 1% (based on shares outstanding for each company) in all five of Japan's trading houses: Mitsubishi (MSBHF 1.64%), Itochu (ITOCY 2.57%), Mitsui (MITSY 3.04%), Marubeni (MARUY 0.78%), and Sumitomo (SSUM.Y 1.94%).
The "sogo shosha," as these five trading companies are also known, have their proverbial hands in virtually every cookie jar in Japan. They play an integral role in the food, energy, mining, industrial and healthcare industries. Buffett's and Abel's unwavering commitment to these five stocks -- Buffett referred to Mitsubishi, Itochu, Mitsui, Marubeni, and Sumitomo as "indefinite" holdings in his 2023 annual letter to shareholders -- signals a bright outlook for the Japanese economy.
The Oracle of Omaha probably favors the shareholder-friendly approach of the sogo shosha, as well. All five trading companies pay a market-topping dividend, and their executive committees take home reasonably low levels of compensation.
But the top selling point for Japan's five trading houses might just be their inexpensive valuations. Taking into account that the "Buffett Indicator" reached an all-time high in February, respective trailing-12-month P/E ratios of 7 to 12 across these trading houses stands out as a bargain.
