Even if Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) If cash was not absurd, there is still speculation and speculation about what Warren Buffett could add to the portfolio. We do not have any inside information on what Buffett will do next, but we love talking about actions that we think would be a perfect fit for Berkshire's portfolio – or investors who like to find investments Buffett type.
So we asked three contributors to Motley Fool to highlight a title that they thought would suit Warren Buffett perfectly. Here's why they chose Waste Management (NYSE: WM), White Mountains Insurance Group (NYSE: WTM), and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL).
How could Buffett not like this investment?
Tyler Crowe (waste management): I must imagine that Waste Management has met Buffett 's office more than once. The giant of waste management would be comfortable in the Berkshire portfolio. The company is a perfect match for a broad economic divide protected by size rules and regulations, and a management team with a strong incentive to reward shareholders with dividends and redemptions.
Waste treatment is not a sexy industry, but it is part of the attraction for investors. It's a company with huge initial capital expenditures that also tend to come up against many regulatory hurdles. This brings huge benefits to established players such as Waste Management. The company is able to pass on price increases to its customers for years because the company still produces waste that it is appropriate to dispose of properly and there is not much of it. ; options.
The company recorded record profitability and operating cash flow in 2018, thanks to increased volumes of waste collection and rising prices. It has been able to return $ 1.8 billion in cash to its shareholders as dividends and larger redemptions. This double shareholder return has transformed a seemingly boring stock into a more efficient market since the turn of the century.
If there is anything that would keep Buffett away from Waste Management, that's the price. The stock is not trading at an unreasonable price – its price / earnings ratio is 22 – but Buffett said he wanted to acquire an entire company, which means that the purchase of Waste Management would require a premium important in addition to what he is trading for today. If this stock were to be offered for sale, however, it would be ideal for the Berkshire Hathaway portfolio.
Slowly but surely, we succeed
Sean Williams (White Mountain Insurance): One thing is absolutely clear: Warren Buffett loves banking and insurance stocks. Companies in the banking and insurance sectors can usually earn money on autopilot. That's why I think Buffett would be willing to dig under the surface to acquire shares of the property and casualty insurance and reinsurance provider White Mountains Insurance.
As with most insurers, White Mountains aims to increase the premiums and reinsurance it receives each year. In 2018, despite a difficult year-end in terms of financial investments, HG Global / BAM, which provides insurance on municipal bonds, achieved record levels of total premium resources and claims. The BAM guarantee business was particularly strong with major institutions in 2018, the company having noted that the secondary market activity had increased by 21%.
As an insurer, White Mountains stands out for its business of acquisition and investment. Even with a fiscally prudent management team, anxious to increase the book value of the company, White Mountains does not hesitate to make significant investments in other companies or acquire them, to complement its technology platforms for insurance, reinsurance and insurance product exchange. Inorganic growth is a quick way to increase net profits and net profits.
It also has a large investment portfolio, of which approximately two-thirds tend to be invested in fixed income assets, and approximately one-third in exchange-traded passive funds. Rising interest rates have a direct impact on the White Mountains' fixed-income portfolio, while the long-term appreciation of the stock market allows the more aggressive portion of White Mountain's investment portfolio to to take value.
More impressively, the systematic repurchase of its common shares by the company reduces its number of shares outstanding and raises its book value. Over the last decade, the share of White Mountains Insurance shares has been reduced by two-thirds, while the book value of the stock has tripled. This has all the features of a consistent business model that Buffett would appreciate.
Buffett should buy some of this tech giant
Brian Stoffel (Alphabet): It is well known that Buffett does not like investing in technology companies. He finds them difficult to understand and – more importantly – says that it is difficult to measure the gap that surrounds technological players. As for Alphabet – Google's parent company – I think however that the time has come to invest in Buffett.
Berkshire Hathaway Vice President Charlie Munger has already publicly stated that Google has one of the widest gaps in the business world, if not the last. It's easy to see why he would think that:
- The brand of the company is huge. Forbes the class as the second most valuable in the world and the company has the two most visited sites in the world: Google.com and YouTube.
- Moderately high switching costs are becoming more prevalent. Last year, Google Drive won its billionth user. When people store data on Google Drive and sync their Android devices, they're more likely to stick to it in the long run – tipping is painful!
- Here's what you need: Alphabet probably has the cheapest data production in the world. It contains seven other products associated with Google Drive that have more than one billion users: Search, Maps, Gmail, Play Store, Android, Chrome and YouTube. All data collected is used to sell targeted ads – a scale that Facebook can never hope to compete with.
Some might argue that Alphabet, trading at more than 30 times the free cash flow, is too expensive. But I would like to counter another Buffett maxim: it is far better to buy a good business at a reasonable price than a fair business at a good price. Alphabet is one of the largest companies in the world and prices are now more than just right.
Suzanne Frey, an executive member of Alphabet, is a board member of The Motley Fool. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of CEO Mark Zuckerberg, is a board member of The Motley Fool. Brian Stoffel owns Alphabet (A shares), Alphabet (C shares) and Facebook shares. Sean Williams has no position in any of the actions mentioned. Tyler Crowe owns shares in Berkshire Hathaway (B shares) and Waste Management. Motley Fool owns shares and recommends Alphabet (A shares), Alphabet (C shares), Berkshire Hathaway (B shares) and Facebook. Motley Fool has a disclosure policy.