Warren Buffett has been nothing short of a master dealmaker for the better part of five decades now. Through a disciplined approach that stresses the understanding of a company’s fundamental business model, as well as buying and holding businesses, not stocks, over a very long period of time, Buffett has played Wall Street like a violin.
Dating back to 1970, Buffett’s holding company, Berkshire Hathaway Inc. (NYSE:BRK.A), has not once in 43 years had its five-year average gain in book value per share underperform the average five-year performance of the S&P 500. I can’t even begin to describe how phenomenal that is, given the multiple recessions we’ve endured as a country.
It might just be safe to say that Warren Buffett knows a thing or two about investing and buying undervalued companies. Some of his latest purchases include railroad BNSF, which gives Berkshire Hathaway Inc. (NYSE:BRK.A) exposure to consumer-goods and petroleum shipping, Heinz (through a partnered buyout with 3G Capital), which adds a strong consumer-condiments brand to Buffett’s portfolio, and NV Energy, Inc. (NYSE:NVE), a Las Vegas energy provider that Buffett’s energy subsidiary MidAmerican will probably use to expand its alternative-energy platform.
But as we’ve come to learn from Warren Buffett, he’s always on the lookout for undervalued businesses. While the large scope of these previous deals may slow down acquisition activity in the near term, there are always companies on Buffett’s radar. Here are three companies that I think would be a perfect fit for Berkshire Hathaway Inc. (NYSE:BRK.A) and that I think should be on Warren Buffett’s radar.
Clorox has quite a few “Buffetisms” in its favor right off the bat. First, it has an easy-to-understand business model. We’re not talking about drug development or bank derivatives here; The Clorox Co (NYSE:CLX) is strictly a consumer-goods company that offers an array of cleaning and household products, as well as a lifestyle segment that mainly sells dressings and sauces.
Secondly, many of The Clorox Co (NYSE:CLX)’s products are set to remain in high demand regardless of economic activity. Bleach, for instance, tends to be an inelastic demand item that’ll be purchased by consumers even if we’re in a recession. Products like Fresh Step and Scoop Away cat litter, as well as Glad trash bags, also show little pricing pressure if the economy weakens. In short, much of The Clorox Co (NYSE:CLX)’s product line can be put on autopilot and it would still sell.
Finally, it’s as simple as this: Clorox just makes money. Over the past decade, its worst year saw it rake in $342 million in free cash flow. Even including that year, The Clorox Co (NYSE:CLX) has been able to generate $5.45 billion in free cash flow since 2003, which is half of its current market value.
Given that it has excellent brand recognition and a product portfolio that could be put on autopilot, I think it’d be an excellent choice for Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.A).
Buffett may have been a bit gun-shy with technology and finance stocks of late, but he could combine the best of both worlds by purchasing Total System Services, Inc. (NYSE:TSS), a software developer and payment processor for the credit card industry.
Total System Services, also known as Total System Services, Inc. (NYSE:TSS), has a business model that certainly encompasses more business aspects than The Clorox Co (NYSE:CLX)’s does, but it’s still very much a transparent “what you see is what you get” type of company. Total System Services, Inc. (NYSE:TSS) has software that’s responsible for every aspect of the credit card evolution process, including opening, servicing, and processing payments. It also offers electronic check and fraud prevention and detection services.