Warren Buffett owns more new stocks than you might think. Sure, he didn’t initiate any new positions for Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) in the fourth quarter of 2022. The only buying the legendary investor did in Q4 was add shares of four existing positions.
However, Buffett did indirectly buy new stakes in three companies through his “secret portfolio.” I’m referring to purchases made by New England Asset Management (NEAM), an investment firm that’s a subsidiary of Berkshire Hathaway. Here are the three new stocks added to Buffett’s secret portfolio — and which one is the best of the bunch.
KeyCorp (NYSE: KEY) stands out as the biggest new addition for NEAM. Buffett’s secret portfolio bought 330,550 shares of the retail bank in the fourth quarter of 2022. As of the end of last year, NEAM’s stake in KeyCorp was worth close to $5.8 million. The current value of the holding has increased since then, however.
AT&T (NYSE: T) ranks in second place behind KeyCorp. In the fourth quarter, NEAM initiated a new position in the telecom giant, buying 271,950 shares. This position was worth slightly over $5 million as of December 31, 2022. AT&T’s shares have risen a little so far this year, though, making NEAM’s stake worth more now.
Buffett’s secret portfolio also started a new position in Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG). NEAM bought 17,100 class A shares that were worth a little over $1.5 million at the end of 2022. Even with the recent pullback for the tech stock, the value of the position is higher now than it was then.
While these three were the new stocks added to NEAM’s portfolio, they weren’t the only stocks the investment firm bought during the fourth quarter. NEAM also added shares to nearly one dozen existing positions, including AbbVie, Lockheed Martin, and Qualcomm.
Why KeyCorp, AT&T, and Alphabet?
It might seem at least a little surprising that Buffett’s secret portfolio bought shares of KeyCorp while it trimmed positions in several other bank stocks. But consumer loans increased in KeyCorp’s latest quarter. Higher interest rates are also driving profits higher. In addition, KeyCorp’s dividend yield of nearly 4.2% looks appealing.
One obvious draw for AT&T is its juicy dividend yield of over 5.8%. The telecom company is also now leaner after spinning off satellite TV business DirectTV, divesting WarnerMedia, and selling other smaller noncore businesses. AT&T could provide stable growth while paying an attractive dividend.
NEAM probably viewed last year’s sell-off of Alphabet as overdone. The company’s advertising revenue growth is slowing, but that’s a reflection of the negative overall macroeconomic environment. Buffett’s secret portfolio likely initiated a new position in Alphabet largely because of its long-term growth prospects, driven primarily by its Google Cloud unit.
Valuation was probably also a factor with all three of these stocks. KeyCorp’s shares currently trade at a little over 9.6 times expected earnings. AT&T is even cheaper with a forward earnings multiple of under 7.9. Alphabet might seem more expensive with shares trading at 17.6 times expected earnings. However, the company’s growth opportunities make its valuation attractive.
Best of the bunch
All three of these recent additions to Buffett’s secret portfolio could deliver solid total returns over the long run. Income investors could especially like AT&T and KeyCorp. However, I think that Alphabet is the best of the bunch.
What about the threat from Microsoft with its integration of OpenAI’s ChatGPT technology with Bing? My view is that this won’t be a Google killer. Instead, I think AI will be a significant growth driver for Alphabet. The company will soon roll out its own Bard chatbot. It also has tremendous growth opportunities with Google Cloud and its famous Other Bets, notably including the Waymo self-driving-car technology unit.
Buffett still doesn’t own Alphabet in Berkshire’s portfolio. However, the shares owned by his secret portfolio could enable him to profit from the AI leader.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Keith Speights has positions in AbbVie, Alphabet, Berkshire Hathaway, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Berkshire Hathaway, Microsoft, and Qualcomm. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.