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Investing.com — A mystery is swirling around Berkshire Hathaway (NYSE:BRKa) following its latest quarterly earnings.
In the build-up to last weekend’s announcement, investors were hoping to discover the identity of the investment giant’s most recent purchase. But Berkshire and its boss Warren Buffett left them in suspense — the stake did not even warrant a mention in Buffett’s closely-watched shareholder letter or Berkshire’s full results.
Some analysts have posited that Berkshire and Buffett — one of the most widely-followed and respected voices on Wall Street — may be aiming to keep the stock confidential to prevent it from receiving attention that could impact its share price.
Markets, relying on a handful of clues gleaned from Berkshire disclosures, have instead only been able to speculate on the secret stock. Analysts widely believe that it is in the financial sector, citing in particular a change in the cost basis for Berkshire’s investments.
The conglomerate revealed that the cost basis — a marker of the original value of an asset — for its holdings classified as “banks, insurance, and finance” stood at $27.1 billion as of Dec. 31, up from $24.8 billion on Sep. 30 and $23.5 billion on June 30.
Combined, the rise in Berkshire’s cost basis for these stocks from June to December is approaching $4 billion. James Shanahan, a senior equity research analyst at Edward Jones, told Investing.com that because federal law currently requires investors who own more than 5% of a company to publicly report the holding, the fact that Berkshire has not revealed the purchase suggests that the nearly-$4 billion increase has yet to surpass that threshold.
“If $4 billion is still less than 5% of the total market capitalization, you would want to think about domestic financial companies [plus a] $70 billion market cap,” Shanahan said. “There are not many of those.”
However, Berkshire has been selling stakes in financial firms in recent years. In the fourth quarter, Berkshire liquidated positions in insurers Globe Life (NYSE:GL) and Markel Corp (NYSE:MKL), as well as payments company StoneCo Ltd.
Investors may not have to wait much longer to see the stock unmasked. Shanahan said he thinks it will be unveiled at Berkshire’s annual meeting on May 4, if the position reaches 5%, or with a securities filing after the close of markets on May 15 — “whichever comes first.”
Berkshire’s latest results
Omaha, Nebraska-based Berkshire’s reported an all-time high operating profit of $37.4 billion in 2023, buoyed in part by a 28% jump in fourth-quarter income to $8.48 billion.
Powering the gains were solid returns from Berkshire-owned auto insurer Geico, where full-year net underwriting earnings came in at $5.43 billion. Elevated borrowing costs also helped generate $6.1 billion in interest income at the company’s insurance division, above the $5.5 billion it brought in from stock dividends.
Berkshire was a net seller of stocks in the fourth quarter, as Buffett struggled to find attractively-priced deals. Berkshire’s cash pile subsequently swelled to a record $167.6 billion.
The 93-year old Buffett, meanwhile, moved to reassure investors that Berkshire is “built to last” through even the worst financial disasters. He added that Greg Abel, Berkshire’s Vice Chairman and designated successor, was “in all respects ready to be CEO […] tomorrow.”
But in his annual shareholder letter released over the weekend, Buffett noted that Berkshire’s share price will likely not see any “eye-popping” performances due to its already massive size. He said that only a handful of firms are capable of “moving the needle” at Berkshire, “and they have been endlessly picked over by us and by others.”
Buffett also took time to honor his long-time colleague Charlie Munger, who passed away in November at the age of 99. Buffett called him the “architect” of Berkshire.
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Source: Investing.com
