In his 2011 letter to shareholders, Warren Buffett expressed a strong desire to make a big acquisition with Berkshire Hathaway's (BRK.A 1.18%) (BRK.B 1.30%) $38 billion in cash.

Since then, many have referenced the "elephant gun" that is Berkshire's cash hoard and speculated as to where that cash could go. Now, after the most recent earnings announcement, we see that the gun has even more ammo -- over $40 billion. At the end of October, Buffett went on CNBC and made his intentions clear: "I'm salivating for a big acquisition."

Gross images aside, where could Berkshire's gun be aimed, and how can you profit?

Fort Knox
Berkshire Hathaway has long been known to have a conservative, protected balance sheet. While the company may not come close to Apple's (NASDAQ: AAPL) famed $120 billion-plus bank account, Berkshire always maintains a large cushion for both insurance losses and acquisitions. As of the most recent quarter, the company holds nearly $42 billion in cash. The last time the elephant gun was brought into action was for the $26 billion purchase of Burlington Northern Railroad. Since then, there have been a few large, but not huge, shopping sprees.

Just recently, it was announced that Buffett picked up a direct retailer of toys and party goods, Oriental Trading, for $500 million. The company has EBITDA of $70 million annually, so we know it's not the elephant Buffett has been hunting. Oriental Trading had gone into bankruptcy in 2010 after drowning in debt because of a revolving door of private equity firms taking hold of the company. Buffett said that Oriental had a strong management team, is a leader in its industry, and has stellar customer service. This buy will only add marginally to Berkshire's results, and it will likely be a sweeter deal for Oriental itself.

The question still remains, where is this elusive elephant? In the aforementioned CNBC interview with Becky Quick, Buffett said he wants a major purchase, possibly somewhere in the $20 billion range, but refuses to overpay (typical). The Oracle of Omaha goes on to say that, with borrowing so incredibly cheap right now, many companies are very aggressive in their bids for acquisitions. Berkshire Hathaway never leverages its purchases, and therefore is much more stingy when it comes to a purchase price. Buffett is hunting, but the competition seems to be too tough for him to find the right company at the right price. So, when and where will the opportunity present itself?

More banking?
We are pretty clear that Buffett's and Berkshire are bullish on the U.S. housing rebound. Berkshire's large positions in Wells Fargo (WFC 2.74%) and US Bancorp (NYSE: USB) are solid (not to mention attractively priced) bets on the rebound as both firms hold large portfolios of mortgages and have already begun to see the benefits of the rebound. Berkshire also recently took control of the ResCap portfolio of mortgages. This was, up until the end, a hotly contested battle for the cheap portfolio. But Berkshire won out in the end with a $1.5 billion purchase price for 47,000 home loans.

With billions already in the banking and housing game, we may need to look elsewhere for Buffett's elephant.

A General idea
As I mentioned in a previous article, one potential company of interest for Berkshire could be General Mills (GIS 1.93%). The company is within the projected price range with a market cap of nearly $26 billion, and it fits the bill of a wide moat, cash-rich business.

From 2008 to 2011, the company averaged a little under 9% compounded annual growth in cash flow from operations. General Mills isn't going to make double-digit gains year after year, given its size and the mature industry it operates in, but nevertheless, it's still one of Buffett's favorite business models -- branded breakfast cereal.

General Mills trades under 14 times analysts' 2014 earnings forecast, which is cheaper than Kraft Foods (Nasdaq: KRFT). Kraft has been a major holding of Berkshire Hathaway for a long period.

While this is just a guess, it should be right along the lines of what Buffett's looking for in an elephant. That is, the "usual suspects" of Buffett criteria:

  • Wide moat
  • Cash rich
  • Sound management
  • Good price

That may sound ridiculously simple, but with Berkshire's giant cash hoard, the company only has so many options and has to keep its criteria to the essentials.

With interest rates set to stay at next to nothing through 2015, it may be a little while before we see Buffett pick up a business he wants at the right price. In the meantime, keep a look out for bolt-on acquisitions that add small pieces of value to the company and fit the portfolio of Berkshire's ever growing empire.