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3 Stocks Warren Buffett Can't Buy, but You Can

By Tyler Crowe, Travis Hoium, and Rich Duprey - Updated Oct 16, 2017 at 1:20PM

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Las Vegas Sands, Aircastle Limited, and WD-40 Company have all of the traits to qualify as Warren Buffett stocks.

Just about every investor out there has dreams of being as successful as Warren Buffett. And really, who wouldn't? Berkshire Hathaway (BRK.A 1.69%) (BRK.B 1.64%) has produced an annualized return of 20.8% since its inception. 

While Buffett has tweaked his investing style slightly over the years, the underlying idea has remained in place: Buy great companies and hold them for a long, long time. With Berkshire's market capitalization hitting $460 billion, a lot of investments that would fit for Buffett are either too small to be worth it or in sectors that may not be in his wheelhouse. Those kinds of investments are available for you, though. So we asked three of our investing contributors to each highlight a stock they think fits the Buffett mold. Here's why they picked Las Vegas Sands (LVS 5.03%), Aircastle Limited (AYR), and WD-40 Company (WDFC -0.79%)

Warren Buffett at Berkshire HAthaway annual meeting.

Image source: The Motley Fool.

A cash machine with a massive moat

Travis Hoium (Las Vegas Sands): Warren Buffett loves companies with a wide, competitive moat that generate lots of cash. Las Vegas Sands has both qualities and would be a perfect stock for Buffett, if only Sheldon Adelson didn't already control it. On top of that, Buffett would have to get a gambling license to own over 10% of the stock, so for an investor like Buffett, what's the point? 

Las Vegas Sands' moat has is arguably one of the best in business, one of only six licensed gambling companies in the world's largest gambling market of Macau -- and one of only two in the lucrative Singapore market. On top of that, it owns The Venetian Las Vegas and Sands Bethlehem in the U.S., although Asia is really where the money comes from. The following chart shows the billions of dollars of cash casinos spit off, as measured by EBITDA, and how Las Vegas Sands uses those funds to pay dividends

LVS EBITDA (TTM) Chart

LVS EBITDA (TTM) data by YCharts

Buffett isn't going to buy Las Vegas Sands because he couldn't take a big stake, he would have no control, and he avoids the gambling industry in general. But if you're an investor willing to bet on gambling stocks, this is a great pick right now. 

A stock to take flight in

Rich Duprey (Aircastle): Warren Buffett has seemingly changed his tune on investing in airlines. Where once he viewed them as places where money goes to die, he has invested some $10 billion in the four biggest U.S. airlines in just the past year. And of course, Berkshire Hathaway owns NetJets, the aircraft fractional-ownership company.

Investors also wanting to tap into that industry should consider Aircastle, one of the leading aircraft leasing companies, which play a crucial role in balancing out airlines' need for airlines around the world. Aircastle can help downsizing airlines in one country find a home for nonessential planes in another, while giving smaller airlines access to planes they might not otherwise be able to raise capital to obtain. Today, aircraft-leasing companies now own 41% of the world's commercial-jet aircraft.

Aircastle has a particular focus on emerging markets, with its two biggest customers being Brazil's Avianca and Indonesia's Lion Air. Its next biggest group of customers can be found in southeast Asian countries including Thailand, Singapore, and Malaysia.

The aircraft leasing company pays a dividend of $1.04 per share that currently yields 4.5%, and it has consistently raised the payout for years.

Aircastle might be a company Buffett would be interested in, but since it's valued at only $1.8 billion, he wouldn't be able to make a meaningful investment in it without buying the whole company. Presumably you don't have that same problem.

Tyler Crowe (WD-40 Company): How about this for a Warren Buffett kind of investment: a company that sports an average return on equity of better than 20% over the past two decades and has solidly trounced the S&P 500 on a total return basis. On top of that, it's a simple-to-understand business with lots of recurring revenue. Those are the kinds of qualities Buffett loves, and they describe WD-40 Company to a T. 

WDFC Total Return Price Chart

WDFC Total Return Price data by YCharts

WD-40 is a prime example of a company that sells a ubiquitous product -- eight out of every 10 households owns a can of WD-40 -- and a management team that stays out of the headlines. What's even more surprising is that the company doesn't manufacture its products. Instead, it contracts third-party manufacturers to keep capital commitments low. That's a large part of the reason the company can generate a net income margin of 14% on a commodity product. 

Rather than making splashy acquisitions or risky moves to grow for growth's sake, WD-40 is much more interested in generating high rates on returns that it uses to grow the business slowly and return loads of cash to shareholders, through increasing dividends and a reduced share count. For a company in a mature market, it's hard to argue with the results.

With the total market capitalization of WD-40 coming in around $1.5 billion, WD-40 isn't really big enough to move the needle for Berkshire Hathaway. For an investor looking to build his or her own Warren Buffett portfolio, though, WD-40 should be high on the list. 

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Stocks Mentioned

WD-40 Company Stock Quote
WD-40 Company
WDFC
$199.78 (-0.79%) $-1.58
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.A
$415,850.00 (1.69%) $6,900.00
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.B
$277.50 (1.64%) $4.48
Las Vegas Sands Stock Quote
Las Vegas Sands
LVS
$35.28 (5.03%) $1.69
Aircastle Limited Stock Quote
Aircastle Limited
AYR

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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