What Will Berkshire Hathaway Inc. (BRK.B) Buy Next?

Page 1 of 2

Warren BuffettWith Burlington Northern Santa Fe still ringing in the backs of investors’ minds, Berkshire Hathaway Inc. (NYSE:BRK.B) last Thursday put $12 billion to work in a joint arrangement with 3G Capital to acquire ketchup king H.J. Heinz Company (NYSE:HNZ). The deal, which represents the largest ever takeover in the food industry, sent shares of Heinz up 20% and valued the company’s equity at a whopping $23 billion.

Perhaps the sheer size of the buy is to blame, but the news surprised investors around the world despite Berkshire CEO Warren Buffett’s repeated assertions that he was just itching to put some of Berkshire’s $47 billion in cash to work. Even now, shortly after the announcement, Buffett told CNBC, “I’m ready for another elephant. Please, if you see any walking by, just call me.”

To be sure, after the Heinz deal is complete, Berkshire will have around $35 billion left in its coffers. Since Buffett likes to keep around $20 billion in reserves on the books, that leaves $15 billion available for new acquisitions going forward.

Two guns, one for each of you…
With that much cash, Berkshire could be working as we speak to acquire another fairly large company outright. However, yesterday’s news shows even larger companies could be fair game depending on the partners involved. In addition, as Buffett commented last week, “Of course, the cash builds from month to month, so the gun is always getting reloaded.”

So the question is when, not if, Berkshire once again surprises the world with another huge acquisition. Here are a few companies, then, that could be at the top of its “to buy” list right now.

Dialing in on dialysis
While Buffett was busy putting the finishing touches on the Heinz acquisition, it turns out Berkshire was also increasing its stake in kidney disease specialist DaVita HealthCare Partners Inc (NYSE:DVA). According to recent SEC filings, after adding nearly 180,000 shares in the fourth quarter, Berkshire now owns around 15% of the well-regarded health care firm, up from a less than 3% stake at the end of 2011, and making DaVita one of Berkshire’s 12 largest positions. Given DaVita’s current market capitalization of $11.1 billion, Berkshire has more than enough cash to buy the remaining $9.5 billion in shares it doesn’t already own.

So why would Berkshire care to own DaVita? To be sure, as a medical operating company, it seems well outside Buffett’s typical comfort zone. However, the fact that Berkshire doesn’t currently own any businesses in the medical industry could be a great excuse to further expand its reach. In addition, thanks to DaVita’s $4.4 billion acquisition last year of HealthCare Partners, the company has moved to diversify operations from its previous laser focus on kidney disease and now manages 152 general health care clinics, 700 staff physicians, and a network of more than 8,300 independent doctors.

At first glance, DaVita’s trailing P/E ratio at just above 21 looks a little rich for Uncle Warren’s taste. Also, given the relatively small size of Berkshire’s position, it was likely the handywork of one of Berkshire’s younger portfolio managers like Ted Weschler or Todd Combs. Buffett, then, could still need some convincing that DaVita would be a good fit with the rest of Berkshire’s businesses. Even still, DaVita’s forward P/E of 13.5 looks much more palatable since analysts expect it to continue growing quickly — a fair assumption considering it has grown earnings at a 15.4% clip for the past decade. Additionally, if Berkshire owned DaVita outright, Buffett would undoubtedly keep existing management in place while encouraging them to continue business as usual, which would be a great thing considering DaVita has been named as one of Fortune’s most admired health care companies for the past seven years in a row.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!