Look to What Buffett Already Owns

Much has been made of Warren Buffett's acquisition of Burlington Northern (BNI - commentary - Trade Now). The rails were bid up aggressively on Tuesday. His positive bet on the U.S. economy over the next 10, 20 or 30 years was seemingly extrapolated into a bullish view in the here and now -- this despite Johnson & Johnson's (JNJ - commentary - Trade Now) announcement that it will be laying off 6% to 7% of its global workforce.

Be that as it may, if one is interested in opportunities, the more prudent analysis is to review what Buffett already owns.

His operating businesses, though very diverse, are primarily in three areas now: rails, insurance and utilities. It's this last sector, the utilities, that has captured my interest recently.

Similar to Burlington Northern, a utility is really a set of irreplaceable assets, and that fits well with the Oracle's ideal holding period of forever. In the shorter term, utilities that are viewed as defensive have been laggards over the last eight months. But if indeed it's true that the economy is turning, then surely more electricity will be consumed. If not, then utilities' defensive nature will certainly be appreciated by the market.

I'm not interested in just any utility, though; I want the ones that have a low carbon footprint. Surprisingly, the market has not priced in a premium on these franchises. The green investing movement seems to be more compelled by wind and solar, as they too have neglected the group. In time, I expect that to change, and that's the nature of good investing -- to get somewhere before everyone else does. Thus, I've been accumulating positions in players such as Exelon (EXC - commentary - Trade Now), Entergy (ETR - commentary - Trade Now), Public Services Enterprise Group (PEG - commentary - Trade Now) and FPL Group (FPL - commentary - Trade Now). Until the sector attracts more interest, the dividends will add to total return.

Now let's take a look at Buffett's non-control positions, those that trade in the public markets. After sliding Burlington Northern to the operating side, we see that 81% of the Berkshire public portfolio is in two sectors: consumer staples (43%) and financials (38%).

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At the time of publication, Masino was long JNJ, EXC, ETR, PEG, FPL, KO, PG, KFT and CBY, but positions can change at any time.

Rich Masino is president of Private Investor Research and editor of The Substantial Investor. He is a private investor who manages a family long/short investment portfolio that holds numerous positions across a variety of asset classes.

Before starting Private Investor Research, Mr. Masino co-founded a telecommunications company that grew to 500,000 customers. He sold all of his interests in the company in 1998.

He holds an MBA in finance from St. John's University.