What Buffett Is Buying Next

Every so often, Berkshire Hathaway Chairman Warren Buffett meets with business-school students. Because so few people ever get to sit down with the Oracle of Omaha, those who do have a responsibility to take good notes.

The folks at The Ben Graham Centre for Value Investing in London, Ontario, did just that.

What Buffett had to say
According to those notes, in addition to his usual advice to think long-term, read a lot, and take advantage of market volatility, Buffett said, "The 19th century belonged to England, the 20th century belonged to the U.S., and the 21st century belongs to China. Invest accordingly."

That means "Buy China," and that's because, as National Geographic Editor-in-Chief Chris Johns wrote in a recent column, "The shock waves of its growth reverberate in every corner of the globe."

Where to start
Buffett's modus operandi suggests that he works on identifying superior companies first and then waits for market volatility to give him his buy-in price. And that may have been just what he did with Chinese battery maker CYD -- a company that Berkshire subsidiary MidAmerican announced it was buying a 10% stake in earlier this week.

This, however, is not the end of Buffett's China buying spree. Using some of the financial criteria Buffett says he looks for in acquisitions (at least $75 million in pre-tax earnings, consistent earnings power, and good returns on equity with little debt), here are a few Chinese quality companies that may also be on his radar:

Company

TTM EBT*

2-Year EPS Growth

Return on Equity

CNOOC (NYSE: CEO  )

$8,616

17.80%

33.30%

China Mobile (NYSE: CHL  )

$21,753

30.80%

27.80%

China Unicom (NYSE: CHU  )

$1,732

38.60%

12.60%

*Trailing 12-month earnings before taxes, in millions.

If Buffett were able to consider smaller companies, these might also be candidates:

Company

TTM EBT

2-Year EPS Growth

Return on Equity

China Security & Surveillance (NYSE: CSR  )

$35.70

35.80%

19.60%

China Precision Steel (Nasdaq: CPSL  )

$19.20

17.80%

22%

Fushi Copperweld (Nasdaq: FSIN  )

$31.20

17.20%

23.90%

Where to go next
Each of these companies has enormous growth potential as part of China's macro story. For example, China Security should benefit enormously from China's "Safe City" initiative.

And the good news is -- thanks to recent volatility in the Chinese stock market, these stocks have gotten cheaper:

Company

Current P/E

Dec. 2007 P/E

CNOOC

7.8

19.5

China Mobile

13.8

36.6

China Unicom

11.9

48.7

China Security

13.1

31.2

China Precision Steel

6.8

23.3

Fushi Copperweld

7.6

13.8

Great opportunity, great price
This is one reason our Motley Fool Global Gains team came home with so many good ideas from its recent research trip to China.

If you'd like to read about what we found in China -- including our special report on three potential billion-dollar companies -- click here to join Global Gains free for 30 days.

This article was first published on May 22, 2008. It has been updated.

Tim Hanson owns shares of Berkshire Hathaway. CNOOC is a Motley Fool Global Gains recommendation. Berkshire is a Motley Fool Stock Advisor and Inside Value recommendation. The Motley Fool owns shares of Berkshire Hathaway. The Motley Fool has a disclosure policy.


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  • Report this Comment On October 07, 2008, at 11:04 PM, madmilker wrote:

    with the way tat GE and Goldman Sachs is headed....I hope he's buyin' time cause he is gonna lose his a!! on them ther two ... time has run out

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