Since becoming CEO of Berkshire Hathaway (BRK.A) (BRK.B) in 1965, Warren Buffett has put on a clinic for Wall Street. Despite navigating numerous stock market corrections, crashes, and bear markets, the Oracle of Omaha has led his company’s Class A shares (BRK.A) to a cumulative return of more than 3,600,000% through the end of 2021.

Riding Warren Buffett’s coattails has been highly profitable for decades, and is relatively easy to do thanks to the required 13F filings from Berkshire Hathaway each quarter. But these 13F filings fail to tell the complete story.

In 1998, Berkshire Hathaway acquired reinsurance company General Re for $22 billion. However, General Re also owned a specialty investment company, New England Asset Management (NEAM). When Berkshire Hathaway bought General Re, it became the owner of NEAM — and thus was born Warren Buffett’s “secret portfolio.”

Today, New England Asset Management has $5.9 billion in assets under management and has stakes in 184 separate securities. We know this because it’s required to file a quarterly 13F just like its parent, Berkshire Hathaway. Among these 184 positions in Warren Buffett’s secret portfolio, there are five phenomenal stocks that stand out as screaming buys in 2023.

Johnson & Johnson
Considering that interest rates are soaring and the likelihood of a U.S. recession in 2023 is growing, time-tested, defensive companies with a long history of competitive advantages are smart buys for the new year. That’s what makes healthcare stock Johnson & Johnson (JNJ) a screaming buy in 2023.

The great thing about healthcare stocks is that demand for prescription drugs, medical devices, and healthcare services remains consistent no matter how well or poorly the U.S. economy fares. This operating consistency is what helped J&J deliver 35 consecutive years of adjusted operational earnings growth leading up to the COVID-19 pandemic.

Another reason for Johnson & Johnson’s success is its well-diversified operating model. On one hand, pharmaceuticals provide the juicy margins that fuel the company’s growth. On the other hand, brand-name drugs have a finite period of sales exclusivity. That’s where the company’s leading medical device segment comes into play. As the population ages, demand and pricing power associated with medical devices should surge.

If you need one more reason to trust in Johnson & Johnson, consider that it’s one of just two publicly traded companies with the highly coveted AAA credit rating from Standard & Poor’s, a division of S&P Global.

Visa
Payment processor Visa (V) is a second stellar stock in Warren Buffett’s secret portfolio that’s a surefire buy in 2023.

Even if a recession were to materialize in the new year and hurt cyclical stocks like Visa, it’s important to understand that Visa has time on its side. Historically, recessions don’t last very long. By comparison, periods of economic expansion are measured in years. Buying and patiently holding Visa allows investors to take advantage of the natural expansion of U.S. and global spending over time.

It also doesn’t hurt that Visa strictly sticks to payment processing and has avoided dipping its toes into the lending pool. Although it could easily generate interest income and added fees as a lender, doing so would expose it to loan losses during inevitable recessions. Not having to set aside capital to cover potential losses is what allows Visa to bounce back from economic downturns faster than its peers.

Don’t overlook Visa’s international opportunity, either. Since most global transactions are still being conducted in cash, there’s ample opportunity to expand its payment structure into emerging markets for years (or likely decades) to come.

Walt Disney
The third phenomenal stock in Warren Buffett’s secret portfolio that makes for a smart buy in 2023 is media behemoth Walt Disney (DIS). Though the company has been clobbered by COVID-19 pandemic-related issues and large operating losses tied to its streaming operations, the sustainable competitive edges Disney brings to the table can’t be ignored.

What’s really impressive about Walt Disney is the way it’s able to connect with consumers of all ages. Few consumer-oriented businesses can engage with users as easily as Disney, which is what affords the company superior pricing power. Since 1955, the price of admission to Disneyland in Southern California has soared more than 10,000%, or 10 times the prevailing rate of inflation during the same period.

But it’s the company’s streaming operations that are getting most of the attention of late. In less than three years following its launch, Disney+ has amassed 164.2 million subscribers, which demonstrates how much of a lure Disney’s characters and stories are to viewers. As cord-cutting continues, the company is perfectly positioned to secure additional subs and make a push to its first quarter of profitability in fiscal 2024.

And don’t forget about Bob Iger, who reclaimed the CEO job last month. Iger oversaw a number of highly profitable acquisitions for the “House of Mouse” and spearheaded Disney’s growth for decades. Expect more of the same as long as he has the reins.

Bank of America
Money-center giant Bank of America (BAC) is the fourth amazing company in Warren Buffett’s secret portfolio that’s begging to be bought in 2023. Even with many of the same headwinds as Visa, three clearly defined catalysts make it a no-brainer buy.

To begin with, BofA has been benefiting from the Federal Reserve’s aggressive shift in monetary policy. Bank stocks with outstanding variable-rate loans generate more in net interest income when interest rates rise. Bank of America tallied $13.9 billion in net interest income in the September-ended quarter, which was $2.7 billion higher than the prior-year period. With the central bank not done increasing rates, BofA can expect more of this net interest to flow directly to its bottom line.

As I’ve previously pointed out, Bank of America’s digitization efforts are paying off. All told, 43 million people are now active digital customers, with 48% of total sales occurring online or via mobile app in the third quarter. As people shift online for their banking needs, BofA has the opportunity to consolidate some of its physical branches in order to minimize noninterest expenses.

The third catalyst for Bank of America is its capital-return program. Bank stocks are often known for their juicy dividends and share buyback programs. During a good year, it’s not out of the question for BofA to return in excess of $20 billion to its shareholders via dividends and share repurchases.

PayPal Holdings
The fifth phenomenal stock in Warren Buffett’s secret portfolio that’s a screaming buy in 2023 is fintech stock PayPal Holdings (PYPL).

Despite inflation attacking the pocketbooks of low-earning workers, PayPal’s digital payment platforms have demonstrated incredible resilience. Excluding currency changes, total payment volume across all of its platforms has climbed by a low double-digit percentage in 2022. The ability to sustain strong growth in such a challenging economic environment shows how powerful digital payments are as a long-term growth trend.

Equally important is PayPal’s innovation. Last year, the company acquired Paidy, a buy now, pay later (BNPL) service in Japan. Then in June 2022, it introduced “Pay Monthly,” which further expanded its BNPL offerings in the United States. Even though CEO Dan Schulman is aiming to cut $1.3 billion from his company’s operating expenses in 2023, PayPal isn’t skimping on innovation.

But as a shareholder of PayPal, the most reassuring data point is the increasing engagement of active accounts. Following a temporary engagement slowdown caused by the pandemic, the average active PayPal account completed 50.1 transactions over the trailing-12-month (TTM) period, ended Sept. 30, 2022. That’s up from just 40.1 over the TTM at the end of 2020. This is phenomenal growth for a fee-driven platform.

— Sean Williams

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Source: The Motley Fool