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 Inc. (NYSE:BRK.B)’s 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 Hathaway Inc. (NYSE:BRK.B) 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 Hathaway Inc. (NYSE:BRK.B) 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 Hathaway Inc. (NYSE:BRK.B)’s largest holdings, and is now mentioned by Buffett in the same breath as Wells Fargo, Coca-Cola, and American Express when he talks about Berkshire Hathaway Inc. (NYSE:BRK.B)’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 Financial Services (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 Hathaway Inc. (NYSE:BRK.B) portfolio, this would essentially complete Buffett’s set of credit card trading cards. JPMorgan Chase & Co (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, Inc. (NYSE:GIS) and The Clorox Co (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.