What Buffett May Be Thinking in 2010

We came back from the Berkshire Hathaway (NYSE: BRK-B  ) annual shareholders meeting in scenic Omaha in April to share an important message: History's greatest investor is too successful for his own good. Berkshire Hathaway's Warren Buffett was once able to nimbly move in and out of his favorite type of businesses, which he described as "those that have high returns on capital and that require little incremental investment to grow."

Berkshire is so large and spins off so much cash that it has no choice but to pour money into investments with high reinvestment needs. That formula may work in Berkshire's case, but as even Buffett himself has said, his ideal business is of the capital-light variety.

You deserve a serving of Buffett in your investing diet. These three stocks are fresh, never-been-pitched ideas in the mold of classic Buffett holdings.

International Speedway
International Speedway (Nasdaq: ISCA  ) is the proud papa of several trophy racetracks that should be familiar to even the most lax of SportsCenter viewers and Will Ferrell fans. Daytona, Talladega, Michigan, Richmond, Darlington, and Watkins Glen are among the 14 racetracks International Speedway owns or operates.

To be clear, International Speedway isn't NASCAR. It's the owner of the tracks and the promoter of more than 100 annual races, dozens of which are in the NASCAR series. International Speedway makes money by selling tickets, concessions, and ad space and receiving royalties on its trademarks and television contracts. Controlled by the France family, which also owns privately held NASCAR, the company has a natural in with NASCAR. We like that management has a twofold financial incentive to make International Speedway's races as successful as possible.

The France family's iron grip on the company bears watching, of course, as does the company's ongoing record of racetrack safety. But with our pegging the shares at $42 per share on an economic rebound, making for an oddly symmetrical 42% upside, those are risks we'll happily take.

Fiserv
Like pandas, capital-light businesses with high switching costs are majestic, powerful, and refuse to mate in captivity. We have two such animals on our Inside Value scorecard,Microsoft (Nasdaq: MSFT  ) and Paychex (Nasdaq: PAYX  ) , and today we're presenting another idea: Fiserv (Nasdaq: FISV  ) . Sadly, Fiserv has nothing to do with pandas.

Fiserv, a market leader, helps keep banks, credit unions, and others in business by processing your money. Fiserv's 16,000 clients rely on the company's practically non-discretionary services. Think account and check processing, credit and debit card services, electronic transfers and bill payment, and more.  Its position in electronic payments leaves the company sittin' pretty in a business primed for strong long-term growth thanks to more financial transactions taking place online.

Fiserv isn't without risk, of course. Tenacious competitors might start cutting prices aggressively, a security breach would also hurt Fiserv's reputation, and consolidation among its customers slightly diminishes Fiserv's pricing power. But our estimate of fair value is at about $66 a share, or 30% higher than its recent price.

Molson Coors Brewing
We love companies that sell brand-name, consumable products that people turn to in both good and bad times -- and Molson Coors Brewing (NYSE: TAP  ) fits the bill. The maker of Coors, Molson, Blue Moon, Killian's, Keystone, and Carling, the company boasts a major market share in Canada (41%), the U.S. (29%), and the U.K. (20%). The company also has a well-played strategic joint venture with SABMiller. By merging the two companies' operations, Molson Coors has been able to cut costs and expand its distribution.

We value Molson Coors at $56 a share, which makes for about 25% upside from recent prices. There's some risk, of course. The industry is tightly regulated, and the competition in the global beer markets is nothing to shake your mug at. That said, Molson Coors has a healthy balance sheet, a track record of cost-cutting and execution, and enough scale to compete. With the stock offering 25% upside, a 2.2% dividend, plus potential emerging-market growth, this is one investment even the teetotaling Buffett would toast.

Interested in Inside Value? Click here to learn more.

Joe Magyer owns shares of Paychex. The Motley Fool owns shares of Berkshire Hathaway. The Fool has a disclosure policy.


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  • Report this Comment On June 28, 2010, at 3:38 PM, madmilker wrote:

    "What Buffett May Be Thinking in 2010"

    duh!

    Why did I buy more Wal*Mart at over $50....

  • Report this Comment On June 28, 2010, at 7:13 PM, mtracy9 wrote:

    "The primary test of managerial economic performance is the achievement of a high earnings rate on equity capital employed (without undue leverage, accounting gimmickry etc.)" --Warren Buffett

    http://shouldersofgiantsinvestor.com/

  • Report this Comment On June 28, 2010, at 9:33 PM, richie54 wrote:

    How about finalizing his will. Old men, no matter how brilliant, don't live forever.

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