With Warren Buffett’s cash pile at all-time highs, he’s likely on the hunt for some new ideas to add to his ever-growing portfolio of companies at Berkshire Hathaway (NYSE: BRK-A).
Warren Buffett has never been a fan of paying a dividend at Berkshire, and with his cash hoard up to $85 billion, I expect him to make another move sooner rather than later. Berkshire made its largest purchase ever just last year, buying up Precision Castparts for $37 billion.
But his businesses, which include the insurer Geico and major railroad Burlington Northern Santa Fe, are generating so much cash these days it’s hard to put it to work fast enough. Buffett raised another $2.4 billion last month thanks to the sale of Berkshire’s stake in Wrigley.
Buffett is a buy-and-hold investor, and one who likes boring stocks. So while seeing him buy up a company like Disney (NYSE: DIS), or even one like Nike (NYSE: NKE), would be interesting, they just don’t fit the Buffett mold. Rather, he builds his fortune with the boring stocks, like railroads and insurance, that generate steady cash flows and aren’t easily disrupted by some new technology.
And over the years he’s given us the keys to his success, outlining the types of stocks he looks for and those he avoids. We can use those guidelines to identify potential Buffett acquisitions in the current market.
So, we’ve scoured today’s market to find stocks that could be on Buffett’s shortlist. To start, Buffet likes “consistent earnings power” and good returns on equity. We’ve found three stocks have the qualities that do fit the mold for Buffett acquisitions:
Harley-Davidson (NYSE: HOG)
After a decent rebound this year, with shares up 34% in 2016, Harley-Davidson’s stock price is still more than 15% off the all-time high we saw in 2014. With a sub-$10 billion market cap, it’d also be a quick and easy purchase for Buffett.
Harley-Davidson has an unmatched return on equity (one of Buffett’s prized measures), coming in at 35%. Plus, it’s paying a 2.4% dividend yield. And Buffett has a history with Harley-Davidson. In 2008, when the motorcycle maker was struggling, Buffett stepped in and offered the company a loan so it could keep its financing arm open. Instead of taking stock in Harley-Davidson, Buffett kept the deal as a loan. Its stock pricejumped eightfold over the next few years. Buffett might not want to miss out a gain. And, don’t forget that Buffett already owns a clothing retailer catering to motorcycle riders.
Harley-Davidson is a timeless brand that’s trading at a cheap valuation these days. That’s because of some missteps in catering to the younger population and millennials. Harley-Davidson’s effort to come backs includes refocusing its marketing campaign and offering new bike models that can bring in a broader range of customers.
Deere & Co. (NYSE: DE)
Buffett already owns a small stake in Deere, but that’s the way it starts — he takes a small stake and eventually makes his move to buy the entire company. He’s steadily been buying up Deere shares since 2012. The stock is nearly as cheap today as when Buffett started buying. Plus, the company offers a 2.7% dividend yield.
Deere has gotten so cheap due to the worry over agricultural profits and weak demand for related equipment. But people will continue to eat. That means Deere’s farming and agricultural equipment will always be in demand.
Amerco (NASDAQ: UHAL)
This is the one name on our list that doesn’t pay a steady dividend (as it pays an irregular $1 to $3 a share dividend at times), but it’s still the most interesting. U-Haul trades with just a $6 billion market cap, so it may be too small to grab Buffett’s interest. However, that’s not a bad thing, as I think U-Haul is much more interesting if it remains a public company.
U-Haul is a dominating force in the do-it-yourself moving industry. That’s right, U-Haul is a public company, but one that’s overlooked, in part, because it trades under the name of its parent company Amerco. The company is family-run and doesn’t pay attention to Wall Street — and Wall Street generally pays little attention to it. But it doesn’t get more steady and under-the-radar than moving trucks and storage rental.
U-Haul shares have fallen over 25% from a 52-week high just a year ago, thanks to a recent weak earnings report. Still, this was just a short-term hiccup. The long-term demand for U-Haul’s services is impressive, as it tends to be steady and non-cyclical. It’s a wide-moat business that has the largest fleet in the industry and owns the real estate for many of its locations.
Will any of these companies become Buffett acquisitions? Maybe not, but the key isn’t to invest with the hopes of a Buffett buyout. Look at this three stocks as great opportunities regardless of whether they draw the Oracle’s attention or not.