Follow Buffett's Lead With This Electric “Pipeline” Company

Warren Buffett's Berkshire Hathaway is looking to buy electric power lines in Canada -- you can follow his lead back home with ITC.

May 16, 2014 at 1:29PM

Warren Buffett's Berkshire Hathaway just inked a deal to buy power-line owner AltaLink in Canada. That extends Buffett's bet on the power sector in a big way. You can follow his lead by adding U.S. electric transmission company ITC (NYSE:ITC) to your portfolio.

What's the deal?
SNC-Lavalin Group and Berkshire Hathaway just agreed to a nearly $3 billion deal whereby Berkshire will acquire SNC's AltaLink. AltaLink owns 7,500 miles of electric transmission lines in Canada. This adds on to Buffett's already big energy division, which was recently renamed Berkshire Hathaway Energy from MidAmerican Energy.

This is an interesting purchase because of what it says about the power industry. It's easy to get lost inside of $200 billion market cap Berkshire Hathaway, but the energy group has been growing via acquisition and now has around $70 billion worth of assets under its control. It serves 8.4 million customers. For reference, Duke Energy (NYSE:DUK) has 7.2 million customers.

In other words, Buffett is betting big on utilities. That alone is worth notice. However, the industry is in a state of flux. Indeed, companies like SunPower (NASDAQ:SPWR) are making utility customers into utility competitors.


(Source: Emmanuel Huybrechts, via Wikimedia Commons)

How's that? SunPower not only makes top-notch solar power cells, but it's increasingly selling and installing them on the roofs of homeowners and businesses. For example, SunPower just inked a deal with Pajaro Valley Unified School District in California to install 1.2 megawatts of solar power at five schools. That's expected to offset nearly 75% of the electricity used at the schools.

The interesting thing, however, is that California is a net metering state. That means that any excess power generated during the day can, essentially, be sold to the power company at government-mandated subsidized prices. This is a virtual gold mine for a company like SunPower because it puts what would otherwise be expensive solar installations within reach of the average (or at least affluent) Joe.

While Pajaro Valley's installation is a huge one, most are smaller. But, the company started 2014 with 20,000 customers in its residential lease program. With that kind of scale, small installations start to add up to a potentially big problem for utilities.


(Source: Lucas Braun, via Wikimedia Commons)

After two years of red ink, SunPower turned a profit of $0.70 a share last year. And, according to CEO Tom Werner, "generated significant cash to fund our growth." Increasingly that includes not only selling the solar cells that utilities need to meet environmental mandates, but also the rooftop solar installations that are turning customers into erstwhile competitors.

Getting ready for the shift
So Berkshire Hathaway's move to by Canadian transmission lines fits well with a future where owning the "pipes" that move power around is a more reliable business than owning power plants. And that is exactly ITC's business. ITC owns 15,000 miles of transmission lines across seven states.

A decade's worth of top line growth shows the stability of the business. With a dividend that's been increased every year since being initiated in 2005 backing that up. Earnings haven't gone up every year, but the trend has been a steady, if not annual, upward march: ITC earned $0.03 a share in 2004 and $1.47 last year—the seventh consecutive bottom line advance.

Doing it the Buffett way
No one can invest just like Buffett because only Buffett controls Berkshire Hathaway. However, that doesn't mean you can't follow his lead. ITC is essentially a U.S. version of AltaLink. By utility standards, ITC's dividend yield of around 1.5% is paltry (Duke, for comparison, yields about 4.3%), but the company is probably among the best positioned to succeed in an energy future where power plants aren't the reliable revenue generating assets they once were. SunPower isn't a bad bet either, but government clean energy mandates are, at present, a key to its success that need to be closely monitored.

You may not be able to invest just like Buffett, but that doesn't mean you can't follow his lead
Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click HERE to discover more about this industry-leading stock... and join Buffett in his quest for a veritable landslide of profits!

Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway and ITC. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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