To reload the gun more quickly
If there’s one thing Warren Buffett is great at, it’s investing Berkshire’s insurance float and shareholder equity to create enormous long-term value for investors. If Berkshire is going to make another large acquisition, then why not another insurer whose float could give him that much more money to invest?
The Allstate Corporation (NYSE:ALL), for one, turned in $33.3 billion in revenue while generating more than $3 billion in operating cash flow in 2012. In addition, Allstate currently trades at under 10 times trailing earnings and 9 times forward estimates with an EBITDA multiple of just 6.1. Of course, considering the size of both Allstate and Berkshire’s GEICO, it would be no easy task to combine the two entities and form the largest auto insurance company in the United States. As a result, there would likely be hairy regulatory hurdles to clear in order to make such a deal happen. Even so, however remote the chances, and if those obstacles could be overcome, an Allstate acquisition would effectively make Berkshire’s huge moat in insurance even wider than it already is.
Agreeing on agriculture
Warren Buffett is often known to use farming analogies to describe investing techniques. To be sure, as a sophomore in high school, Buffett once showed his early entrepreneurial spirit when he bought a 40-acre farm in Nebraska and hired tenant farmer to run the operation. In addition, Buffett also bought a farm in 1977 for his son Howard (charging him rent, of course) who, in addition to his philanthropic efforts, has been farming in Nebraska ever since.
That’s why I wouldn’t be surprised if Berkshire eventually made a play to acquire a steady agriculture giant such as $22 billion corn processing king Archer Daniels Midland Company (NYSE:ADM) or even $35 billion heavy equipment specialist Deere & Company (NYSE:DE). On one hand, similar to DaVita, Berkshire currently owns small stakes in both Archer Daniels and Deere, which were likely bought by Combs or Weschler. On the other hand, unlike DaVita and considering Buffett’s long-standing appreciation for the industry, both Archer Daniels and Deere would have little trouble fitting in with the rest of Berkshire’s businesses including agricultural systems specialist CTB.
The fact remains Berkshire is one of the world’s most powerful companies, and Warren Buffett is working hard to ensure it stays that way long after he’s gone. In any case, don’t be surprised when Berkshire announces its next huge deal. In the end, whether you choose to buy shares of Berkshire or one of the other aforementioned companies, I’m betting you’ll be more than satisfied with the results over the long run.
The article What Will Berkshire Buy Next? originally appeared on Fool.com and is written by Steve Symington.
Fool contributor Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway and H.J. Heinz Company. The Motley Fool owns shares of Berkshire Hathaway.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.