Warren Buffett Just Added $610 Million Worth of These 3 Stocks to Berkshire Hathaway's Portfolio. Here's the Best of the Bunch.

Warren Buffett is one of the most widely followed investment managers in the world. And there's good reason for that. His track record of market-beating returns dates back to the 1950s when he founded Buffett Limited Partners. He produced a compound annual return of 25.3% for his investors over the life of the partnership, while the Dow Jones Industrial Average (DJINDICES: ^DJI) index grew just 9.1% per year on average.

Since taking over Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) in 1965, he's grown the value of the business at a compound annual rate of about 20% over nearly 60 years, nearly twice the rate of return as the S&P 500 (SNPINDEX: ^GSPC).

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So, when Buffett makes a move in Berkshire Hathaway's equity portfolio, the whole world pays attention. Recently, he made several purchases totaling over $600 million, adding to three of Berkshire Hathaway's positions. But one stands out as the best of the bunch for investors interested in following Buffett.

Buffett's most recent buys

We usually have to wait until Berkshire Hathaway's quarterly earnings or the company's quarterly 13F filing with the SEC to see the big moves Buffett and his team make in its equity portfolio. However, the SEC requires anyone with a greater than 10% stake in a company to disclose trades within three days of buying or selling shares. That's how we got an early peek at these purchases Buffett made in December and early January:

• 8.9 million shares of Occidental Petroleum (NYSE: OXY) for $409 million
• 5 million shares of Sirius XM (NASDAQ: SIRI) for $107 million
• 474,000 shares of VeriSign (NASDAQ: VRSN) for $94 million

Buffett has built a massive position in Occidental Petroleum since he first invested $10 billion in preferred shares of the company in 2019. That cash helped Occidental acquire Anadarko that year, and it's continued to be opportunistic with acquisitions, most recently acquiring CrownRock. Occidental's dominant position in the Permian Basin gives it access to one of the lowest-cost sources of oil in North America, but it also ties the stock closely to oil prices.

Buffett has mostly been opportunistic with the stock, buying up shares of Occidental when its price is below the price of the warrants attached to the preferred shares he owns. Berkshire now owns 28.2% of the oil and gas company.

Berkshire's also been a big buyer of Sirius XM over the last few years. Much of Berkshire's stake in the satellite radio operator came through its purchase of the Liberty SiriusXM tracking stock, which frequently traded at a discount to Sirius XM's stock based on the merger agreement. This wasn't just another arbitrage play for Buffett and his team, though. The company continues to add to its position and now holds a 34.6% stake in the business.

VeriSign is a longtime holding for Berkshire Hathaway. Buffett first purchased shares of the website domain registry service provider in late 2012, but he hasn't bought shares of the company since 2014. It produced great returns for investors through the 2010s, but the stock has gone sideways in the 2020s.

Without any major changes in the underlying business, Buffett saw an opportunity to add to his position in a company that is producing steady revenue and earnings growth. In fact, it may be the best of the bunch, despite being the smallest purchase of the three.

A natural internet monopoly

VeriSign holds the exclusive registration rights for .com and .net domain names. Its contracts with the Internet Corporation for Assigned Names and Numbers (ICANN) automatically renew as long as it meets certain requirements. VeriSign just has to pay a small fee to ICAAN and maintain uninterrupted service for the domain name system (DNS).

As long as it does that, VeriSign will maintain its position as the only supplier of the two most popular top-level domains. It hasn't had any issues for the past 27 years, and it doesn't foresee any challenges upholding its end of the bargain going forward either.

That puts VeriSign in a very powerful position. The only curb against its monopoly is limits on annual rate increases for new domain registrations. Its latest contracts allow it to raise the price of .com and .net domains by 7% and 10% per year, respectively. There's also a two-year price freeze built into the first two years of each contract.

Still, the combination of more and more businesses registering for domains and price increases in most years has led to steady revenue growth for the business. Considering the overhead costs don't increase substantially as it scales, VeriSign has shown tremendous operating leverage over the last decade, growing net earnings 146% in that time on the back of 51% revenue growth.

While new top-level domains have entered the market over the last 10 years or so, .com and .net remain the most in demand. There are few professionals who want anything other than these premium domain names. As such, VeriSign is well positioned to continue producing steady revenue growth and solid earnings for the foreseeable future. And with a generous capital return program, investors should see relatively strong and predictable earnings-per-share growth.

A truly wonderful business at a fair price

Buffett's investment strategy focuses first on finding truly wonderful businesses, and VeriSign seems to meet the mark. That said, it trades at a much higher valuation than either Occidental or Sirius XM.

Investors can pick up shares of Occidental for just 12 times analysts 2025 earnings per share (EPS) expectations. Sirius XM is even cheaper, trading for 7.5 times forward earnings, as of this writing. Those valuations make the stocks hard to ignore, but the challenges they face with lower oil prices and listeners shifting to streaming make their future earnings less certain.

VeriSign trades for a relatively hefty multiple of nearly 25 times forward earnings estimates. But with millions of customers who will happily pay higher prices to renew their domains every year, it should be able to produce double-digit EPS growth for years to come. That makes the current price look like a fair deal for a wonderful business.

Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and VeriSign. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.