Buffett's No-Brainer Buy

If you had 11 fingers, you could count the number of AAA-rated corporate borrowers on one hand. There were actually only five such companies until Microsoft (Nasdaq: MSFT  ) landed the top rating last week upon announcing a recapitalization.

General Electric (NYSE: GE  ) does not take its top credit rating lightly. Facing a financial windstorm, the company has battened down the hatches. The share buyback is suspended. GE Capital's dividend to the corporate parent is being cut from 40% to 10% of earnings. The division's commercial paper program is also being curtailed.

Mr. Market hasn't responded enthusiastically to these moves, but Mr. Buffett has. Warren Buffett's own Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) sports the fabled AAA rating, and the Oracle of Omaha knows that it doesn't come easy. He's a believer in GE, and he's stepped in today with a sizable investment in the blue-chip behemoth.

As with his Constellation Energy (NYSE: CEG  ) buy, Buffett is getting a heck of a good price. And as with his Goldman Sachs (NYSE: GS  ) investment, he's getting some seriously sweet terms.

Berkshire is again buying "perpetual" preferred stock, yielding a fat 10% dividend. However, this is callable at a 10% premium after three years. The company also gets five-year warrants to buy $3 billion worth of GE shares at $22.25 each, about a 10% discount to the price as I write these words.

Fools, these purchases by Buffett are not symbolic. The man is not simply demonstrating good faith in the American economy. He is out to make massive returns for his shareholders.

As a small investor, you can't make investments with as many perks attached. But you can buy big winners that are far too small to move the needle at a giant like Berkshire Hathaway. And the bargains are bountiful out there. Here are five of my top picks to get you started.

Microsoft and Berkshire are Motley Fool Inside Value selections. Berkshire is also a Stock Advisor recommendation. Take a peek at any of our Foolish newsletters free for 30 days.

Fool contributor Toby Shute doesn't have a position in any company mentioned. Constellation is a former Income Investor pick. The Motley Fool owns shares of Berkshire Hathaway. The Fool's disclosure policy thought you should know all that.


Read/Post Comments (10) | Recommend This Article (37)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 02, 2008, at 10:33 AM, StocksBuyorSell wrote:

    Buffet is definately one of the best investors out there, however I think he is fast becoming a celebrity, which makes me like him a lot less than I did before. He also has some strange personal habits - not to mention he is a liberal when it comes to politics. http://stocksbuyorsell.com

  • Report this Comment On October 03, 2008, at 12:13 PM, Hungry4truth wrote:

    I am a New Fool user and I am "VERY

    DISSAPPOINTED" that there are NO direct or straight links to the so called "Free Stock Picks" that are uncannily like the Berkshire Hathaway gains of past.

    Every link that you offer I have clicked on that says get your New report that gives you the New Top 5 stock picks and when you click on the link you go thru all these other story's and side bars and unless you are a Top student of wading thru Heavily weighed down articles with Pork internet.

    The regular guy like me finds your foremat almost impossible to find the things we were lured in to go after which is all the Top stock picks you and Motley Fool recommends! Please get to the point and make your forecast MUCH Simpler....Regards,

    Hungry4Truth

  • Report this Comment On October 03, 2008, at 12:45 PM, sparksinchitown wrote:

    Buffet believes in man made global warming and consequently favors limits on Air Conditioning and meat. He is buying into the largest corporation in the country which deals dual use technology to Iran. Favors higher tax's (not just higher taxes, Obama high).

    He has the same political bend as George Soros's, and seems able to make money like G Soros's. So he is rich.

    But a genus???

    A patriot???

    Please explain

  • Report this Comment On October 03, 2008, at 4:09 PM, ConservationUSA wrote:

    America Wastes over 70% of the Energy it Consumes !

    The Energy Waste is Everywhere !

    (1) We consistently over heat and over cool our homes, businesses,

    offices, schools, churches, etc...

    (2) 100's of millions of lights are on unnecessary every day and every night.

    (3) Landfills are busier than ever. Over packaging with plastics is

    the norm. Recycling is optional and thereby inadequate.

    (4) Most Americans do not minimize their driving. Therefore,

    congestion on roads is horrendous.

    (5) Road construction is the ultimate contradiction!

    Until the price of gas is $7 to $8 per gallon, Americans will not

    significantly reduce their waste and over demand for energy.

    The economic impact of taxing energy is the way to eliminate energy

    waste and over demand. Only with a tangible dollar reward /

    consequence will America care and act to conserve. Crude oil must be

    taxed at $200 per barrel (55 gal) and 'offset' by making Federal

    Income Tax begin at $70k. High energy costs are also the incentive by

    which sustainable energy supplies will be developed. In the mean time,

    the USA continues its incredible energy waste and gives away its

    economic and political wealth to the Islamic Middle East via OPEC.

    Know that the Islamic dominated OPEC cartel is glad to allow supply

    and demand market forces to drive energy prices to $8/gallon. Our

    hedonist energy waste empowers the Islamics who desires our demise.

    China, India, and other 'developing countries' have only begun to

    compete for the world's remaining fossil fuels. Unless global demand

    for fossil energy is dramatically reduced, world war is inevitable

    (future geopolitical unrest will be directly related to global

    competition for energy and natural resources).

    Ford and General Motors are headed for bankruptcy, which will leave

    100,000,000 Americans unemployed, ruin our economy, and lead to

    anarchy. America can no longer continue to 'do business as usual'.

    Ford and GM must quickly transition to the lucrative business of

    building solar and wind 'energy producers' for the world's 6.7 BILLION

    people reason$. The world cannot continue to support all the

    automakers. We are running out of petroleum !

    Mass transit must reward those who reduce their driving and thereby

    become FREE, SAFE, CLEAN, and CONVENIENT.

    The incentive necessary to create renewable and sustainable energy

    supply can ONLY occur when we implement the economics of TAXING ENERGY in lieu of income taxes.

  • Report this Comment On October 03, 2008, at 7:32 PM, enet12001 wrote:

    I was sent an article from "The Motley Fool" titled "The ONE shock proof investment that just goes up." And "Just look at these gains last year from water technology companies..." The stocks and there last year gains that were listed in this article were as follows:

    CCC -- stock up 283%

    HDRX -- stock up 325%

    PNR -- stock up 528%

    WWAT -- stock up 630%

    I personally went back and check out these stocks via Bloomberg.com and none of them were even close to showing these gains, in fact HDRX closed the year as a loss.

    So what gives with these gentlemen and there newsletter? Would anyone from "The Motley Fool" please explain this to me?

    Thank you!

  • Report this Comment On October 05, 2008, at 7:11 AM, doutlawstar wrote:

    Hi enet don't you realize how they make money....take a stupid stock.for instance this past week i made 3.1% in buying AIG...could have made more money if i bought it 2 days later and sold it 2 days later as well

    i bought 600 shares of aig at 3.75, it dropped to 2.60 more or less and i sold it at 3.90 =15 cents for a profit of 70$ once brokerage fees were paid...

    if i had waited till friday morning i would have sold it at 5.00 $ =600$ but playing that 70$ a week x 50 weeks = 3500$

    a year and that his how they double their money

    to make money you don't have to make

    an apple at 120 and hope to make 80$ a share but trade its average daily range and not a monthly or yearly range

    and thats how they make their money

  • Report this Comment On October 06, 2008, at 2:27 PM, AvoyagerDbs wrote:

    I rather die owing then be owed to.

  • Report this Comment On October 18, 2008, at 2:29 PM, BierBierBier wrote:

    Call me crazy, but I have a hard time believing a stock is worth buying unless the writer owns a few shares of it.

    This is not a charity, we're here to make money.

    Own it, tell me why you own it and then say whats in it for me.

    The Fool was a lot better when it was smaller and free (1998 - 2000).

    Thank you.

  • Report this Comment On June 02, 2009, at 3:09 AM, nonidiomatic wrote:

    If you want a slam dunk, double your money buy; it is CROSSTEX. Either XTXI @ $3.50 or XTXI @ $3.13 / share. A multi-functioned Natural Gas company whose price has been beat down mercilessly, way beyond logical reasoning. CROSSTEX flies under the radar being a small-cap stock, but has revenues of 5 BILLION dollars annually and hard assets @ 1.75 BILLION dollars. With Natural Gas prices on the verge of moving higher, you owe it to yourself to check XTXI / XTEX out.

  • Report this Comment On August 06, 2009, at 2:48 PM, sean9960 wrote:

    okay knuckleheads.... General Electric is in the top 20 companies the US government does business with, can it get any easier that that???

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