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
blog comments powered by Disqus
Insider Monkey Headlines
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

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Burger Kings: The 10 Most Expensive Burgers in the World

The 10 Most Ethnically Diverse Countries in the World

The 10 Most Exclusive Credit Cards in the World

The 10 Most Expensive Cruise Ships in the World

The 10 Fastest Supercomputers in the World

The 10 Best Countries for Doing Business 2015

6 Most Expensive Fruits In The World

10 Worst Airlines in the World

The 10 Biggest Tax Havens in the World to Stash Your Money

The 15 Most Murderous Countries in the World

10 Largest Colleges in the World: Bigger Isn’t Always Better

Comedians in Cars Getting Coffee: The 6 Comedians Seinfeld Needs to Interview

Easy Money: The 10 Most Successful Investors in the World Today

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!