Roundtable: Buffett's Next Moves, and Is Berkshire a Buy?

The 43rd Berkshire Hathaway (NYSE: BRK-B  ) annual meeting kicks off in Omaha, Neb., this weekend. Thousands of investors worldwide -- including a team of Fools -- will travel to middle America to learn about business and investing, and to hear directly from Warren Buffett and Charlie Munger about where we stand today.

In anticipation of this weekend's events, I asked a team of Fool advisors and analysts about Buffett and his life's work, Berkshire Hathaway.

1. Let's say you're handed the microphone and can ask one question at this weekend's Berkshire annual meeting. What would you ask of Buffett and Munger?

Bill Mann, co-advisor, Motley Fool Hidden Gems and Motley Fool Global Gains: "Can I have some money?"

Many of the questions over recent years have become somewhat repetitive, though I am glad the annual "Why won't you buy technology shares?" seems to have fallen away as shares in companies like Qualcomm (Nasdaq: QCOM  ) fell from the sky. I suspect we'll get plenty this year on the travails in the financial industry and what opportunities the fall from grace of MBIA and others has created for Berkshire. But I think one of the things Buffett has been quietly focusing on in recent years -- in word and in deed -- are companies located outside the United States.

My question would be (and heck, maybe it will be) some form of the following: "One of your great focuses has been on companies with great cultures, and you've long said that you didn't think it made sense to be anything but bullish on the American economy. Are there things you look for on a national level to guide you on where might be fertile ground for promising investments?"

Seth Jayson, co-advisor, Hidden Gems: "Wanna play some cards later?"

But seriously, I'm not sure I could ask him something he hasn't been asked a thousand times before. One of the issues I've been thinking about recently is finding great management, and I might ask him to talk about that a little bit. How do you avoid being charmed at the expense of performance? We all know it matters, but how do you figure out from a face-to-face meeting whether your managers have what it takes? By now, of course, it's a bit easier for Buffett than for the rest of us, as managers who come to him are sort of a self-selecting group of proven overachievers.

Tim Hanson, Hidden Gems micro-cap analyst: The world is in some environmental distress. You, Buffett, have a lot of money and business expertise. There aren't necessarily a lot of "value" plays in the alternative-energy space, but have you thought about looking into the sector, given its potential not just for returns but also for solving a major global problem? There have got to be some entrepreneurs out there who want to come to you.

2. Buffett once said that "a cheery consensus is the enemy of the buyer of long-term values." Now, looking specifically at Berkshire Hathaway the stock, you could argue that a cheery consensus exists -- Berkshire was voted No. 2 in Fortune's recent "Most Admired Companies" issue. The Fool holds Berkshire in our real-money portfolio, and it's a recommendation of not one but two of our newsletter services. It's also a five-star CAPS stock. Is it possible that a cheery consensus exists, or, near current price levels, is Berkshire an attractive long-term holding?

Mann: I've thought about this a lot. In February 2000, I penned the bull side of a "Dueling Fools" piece on Berkshire Hathaway very close to what turned out to be the decade low for the stock. Few loved it then. Many, many more love it now.

It should be obvious, but with a market capitalization around $200 billion, the biggest gains for Berkshire are in the past. However, even though there are plenty of people who own Berkshire for the "cult of Buffett," that doesn't necessarily mean that the company is overvalued. In fact, given that Berkshire still sits on $45 billion in cash and is one of the last AAA-rated credits standing, the halo around Warren Buffett and Berkshire may not be bright enough.

Jayson: If hundreds of fawning shareholders hanging on your every word don't constitute a cheery consensus, I don't know what does. But cheery consensuses aren't always wrong.

I think Berkshire is a fine company, but it definitely has challenges, not the least of which is finding enough big opportunities to deploy those massive chunks of capital. I think, however, that it's probably one of the best downmarket companies to own, because it can buy big when others will be cowering in corners, hiding from their own shadows -- or shareholders. Berkshire will be at its best if and when the market really freaks out and good businesses experience outrageous price drops.

Hanson: Berkshire is not a value stock. But it is a great company, and the stock is priced roughly close to fair. For that reason -- and also because it's the most enjoyable stock in the world to follow, thanks to its transparent and accessible shareholder reports, the annual meeting, and Buffett's frequent commentaries -- it's a fine long-term hold. As Warren Buffett has said, "It's better to buy a wonderful company at a fair price than a fair company at a wonderful price."

And Berkshire has a lot going for it. First, it's its own little diversified fund -- with attractive operating businesses, exposure to currencies and derivatives, the best insurance business out there in GEICO, and a master capital allocator in Warren Buffett. What's more, the recent deal to back the Mars acquisition of Wrigley (NYSE: WWY  ) and the entrance into the bond insurance market show just how much flexibility this company has to think outside the box, given its credit rating and cash hoard. While I can guess at more than a few companies I think will outperform Berkshire going forward, I don't think anyone would ever regret buying a share of this iconic business.

3. Pundits and investors have speculated about what Buffett might buy with Berkshire's huge cash war chest. The entry into bond insurance -- to compete with rather than take over entrenched but battered bond insurers MBIA and Ambac Financial (NYSE: ABK  ) -- caught many off guard, as did this week's Mars-Wrigley deal. Trying to predict the Oracle's next move is folly, but if you were Buffett and had Berkshire's resources, what companies would you be looking at?

Mann: Buffett loves companies with big moats, and when he bought Clayton Homes, he also showed that he didn't mind companies with large debt loads -- Berkshire's AAA rating could lower the acquired companies' cost of debt. This means that companies are worth more in the Berkshire fold than they are with almost anyone else. Berkshire's size means that small companies don't really move the needle. He's also shown an increasing willingness to buy overseas.

Were I to boldly suggest a company for Warren Buffett, it would be Grupo Ferrovial, a Spanish construction and infrastructure company that owns and/or manages an amazing set of assets, including London's Heathrow, Stansted, and Gatwick airports; Highway 407 in Ontario; the Chicago Skyway; the Indiana Toll Road; and facilities with more than 200,000 parking spaces in Spain, Andorra, and Puerto Rico. Revenues in 2007 exceeded 14.6 billion euros.

Jayson: I wouldn't count out another attempt to get into the municipal insurance game in some way. I also wouldn't be surprised to see Berkshire take a supersized portion of some distressed financial, but on terms that everyday investors like us could never get, such as a high-interest convertible debt and a seat at the table -- more like some of the big deals we've seen coming to banks like UBS, Citigroup (NYSE: C  ) , and Washington Mutual from sovereign wealth funds and other big money shops. But I'd expect Buffett to be pickier about the quality, quantity, and transparency in the loan portfolio.

In general, until market conditions really get funky, I'd expect to see more debt or debt-like deals with companies producing the cash flow to reliably pay the bills. I also wouldn't be surprised to see Berkshire fold in the stronger of the homebuilders if and when Pulte (NYSE: PHM  ) , Ryland, and the rest take another cold bath over the summer. But he'd need to find a deep, real discount on land, as well as management he could trust in that arena -- and that's a long putt.

Hanson: The thing about Berkshire Hathaway is that its greatest resource isn't its $45 billion cash hoard. It's the wisdom of Warren Buffett and Charlie Munger. So if I had access to that, I'd be looking hard at picking up hefty stakes in medium-sized companies in China, India, Brazil, Vietnam, and in other emerging markets. As Warren Buffett himself was reported to have said recently, "The 21st century belongs to China. Invest accordingly." Not only could these companies benefit from some low-cost capital, but they could also go to the next level with Buffett or Munger helping them communicate with investors and make strategic decisions.

One company that comes to mind is American Oriental Bioengineering (NYSE: AOB  ) . It meets the six acquisition criteria Buffett laid out in his 2007 letter to shareholders, and AOB could benefit enormously from Buffett's acquisition and corporate government expertise.

On May 2, Bill and Seth, along with Philip Durell, head to Omaha, Neb., to represent you at the Berkshire Hathaway annual meeting. To read their real-time dispatches on each day's events, enter your email address in the box below. It's free, and there's no obligation.


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