Berkshire Hathaway's (NYSE: BRK-B ) Warren Buffett has famously said that a ham sandwich could run Coca-Cola (NYSE: KO ) .
While it may sound odd, it's high praise from the cola giant's largest shareholder. What Buffett is getting at is that Coca-Cola's products and business are so exceedingly strong that management would have to actively try to screw it up. In other words, the business could run on autopilot and continue earning attractive returns for shareholders.
Conversely, if you've been following the news on consumer goods giant Procter & Gamble (NYSE: PG ) lately, you might think that its business isn't quite as strong. The New York Times had this to say: "The chief executive of Procter & Gamble, the consumer products giant, resigned yesterday as the company announced it would suffer another disappointing quarter and its stock price fell."
Wait a minute. Oh wow, this is embarrassing. That was a New York Times article from June of 2000. Here's the actual coverage from this past week, this time from Reuters: "The world's largest household-products maker cut its growth forecasts for a second time in two months on Wednesday, as expected, and said it did not expect to repurchase shares in the coming fiscal year."
The news was obviously distressing to investors as shares dropped 3% following the announcement, wiping away around $5 billion in equity value. Over the past year, P&G's stock has fallen nearly 3%, even as the Dow Jones Industrial Average (INDEX: ^DJI ) -- of which P&G is a part -- has risen close to 5%.
Of course, if we look back to the events of June 2000, investors were similarly distressed and selling off the stock. Those sellers in June 2000 had some foresight to the extent that P&G went on to post another annual profit decline in 2001. However, if we look at the bigger picture, P&G has actually done really well since that June 2000 sell-off. For the eleven years between June 2000 and June 2011, P&G's earnings per share leapt more than 200%, for average annual growth of 11%. Over that same stretch, investors collected $14.17 per share in dividends.
The issues facing P&G today are different than they were back in 2000, but the concern is the same -- that growth is slowing. As they say, past performance is no guarantee of future results, so P&G's strong profit performance since 2000 doesn't mean we should totally ignore today's concerns.
On the other hand, I feel pretty comfortable saying that Buffett would lump P&G with Coke as far as companies that could be run by ham sandwiches (Berkshire is P&G's fourth largest shareholder). And for investors with longer time horizons -- that means years, not months -- these kind of reliable, ham-sandwich businesses can be very appealing investments when Mr. Market freaks out over near-term performance.
The ham sandwich that will shock you
So Coke and P&G are prime examples of businesses that are so great that they could be managed by cold cuts on sliced bread, with the possible inclusion of mayo and mustard (Buffett wasn't clear on condiments). There are others that seem like good examples -- I'd count Kleenex kingpin Kimberly-Clark as one. There are far more companies that will never qualify -- Apple (Nasdaq: AAPL ) , for instance, is so innovation-heavy that visionary leadership is an absolute must.
But in a great turnabout, Buffett's own Berkshire Hathaway may be one of the best ham-sandwich companies out there right now.
There's a good deal of hand-wringing that goes on regarding the eventual departure of Buffett -- whether through retirement to the bridge table or retirement to the great stock market in the sky. But it's not as if Buffett's been blind to that issue and the way he's built the company for years has turned it into a massive conglomerate that benefits from Buffett's presence, but doesn't rely on it.
To be sure, Buffett has put a lot of effort into choosing successors for both the investing and business side of Berkshire. But if it turned out that Buffett's ultimate successor was, indeed, a ham sandwich that simply returned earnings to shareholders rather than profitably reinvesting them as Buffett has done, investors would still make out very well as they benefited from the cash flows of businesses like BNSF Railway, GEICO, and MidAmerican Energy. Not to mention the dividends paid to Berkshire through big stockholdings like Coke and P&G.
Best of all, Berkshire's stock is currently trading at some of the lowest multiples its ever seen, in part because many investors don't believe that this is a ham-sandwich company.
American ham goes worldwide
Strong companies like Berkshire and P&G that have grown and prospered for decades can be great investments. But when companies like those put down strong footholds in fast-growing markets, it can be a bonanza for investors. For three companies that are doing exactly that, check out The Motley Fool's free report "3 American Companies Set to Dominate the World."