Warren Buffett is a Wall Street icon for good reason: He's achieved a record that few can match. So trying to understand what he does and why makes a lot of sense. If you are a Warren Buffett fan, you should get to know Markel Corporation (NYSE:MKL), a business that has similarities to Buffett's own insurance company, Walmart Inc. (NYSE:WMT), a Buffett holding that's making good headway on the internet, and Seritage Growth Properties (NYSE:SRG), a landlord that's getting a helping hand from Buffett as it deals with some near-term headwinds. Three Motley Fool contributors provide a quick primer on each.
Keith Speights (Markel Corporation): How would Warren Buffett describe his favorite stock? He'd probably say that it generates nice cash flow through strong insurance and reinsurance businesses. The legendary investor would also likely point out that it uses that cash flow to buy businesses and stocks in other industries. And he'd nearly certainly point out the company's strong management team.
These characteristics definitely describe Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B), which is obviously Buffett's favorite stock of all. But they also fit Markel to a T. When you look at Berkshire and Markel side by side, it's almost like seeing double. But there are a few key differences.
For one thing, Markel is much smaller than Berkshire -- roughly 1/30 the size of Buffett's company. Also, Markel focuses on insurance and reinsurance for niche specialty markets that many other insurers ignore. And when it comes to building its investment portfolio, Markel isn't shy about investing in high-growth technology stocks. Buffett has readily admitted he made mistakes in the past by not buying several top-performing tech stocks.
Markel's share price has more than doubled over the last five years, outperforming Berkshire. The company's core businesses appear to be in great shape to keep giving Markel plenty of money to reinvest, fueling even more growth. Buffett might not own Markel yet, but his fans will probably really like this smaller Berkshire clone.
I still believe in Walmart
Brian Stoffel (Walmart Inc.): I always have a tough time identifying a great "Warren Buffett" stock. That's because there's absolutely zero overlap between the stocks he owns and the ones in my portfolio. Knowing that, I'm tapping the same company I did last month for this task: Walmart.
There are a few moving pieces that investors need to be aware of when viewing the company from 30,000 feet. First, its acquisition of Jet.com two years ago has been a huge boon to improving its e-commerce game. When 2018 comes to an end, the company will likely be looking at 40% growth from the division.
The second major factor is the investment in Flipkart -- a major e-commerce player in India. Over the short term, there's going to be some pain for investors: Shareholders will likely miss out on $0.85 per share in earnings between 2018 and 2019. That's not pretty.
But Buffett likes to remind us that the long term is all that matters. And investors should take heart in the opportunity Walmart is investing in. E-commerce in India is expected to grow from $27 billion today to $73 billion by 2022. With a major stake in the leader in the country, Walmart stands a good chance to capture an outsized slice of that pie -- which will mean good things for investors over the next 5 to 10 years.
Good news and bad news
Reuben Gregg Brewer (Seritage Growth Properties): If you were a landlord and Sears and Kmart stores accounted for roughly 40% of your income, you would be freaking out right now. That's because Sears Holdings recently declared bankruptcy. That's exactly the position in which Seritage finds itself today.
But this isn't a surprise. Sears Holdings spun off the real estate investment trust, or REIT, a few years ago for the specific purpose of raising cash to help the struggling retailer. Seritage, meanwhile, started to reduce its exposure to Sears and Kmart as soon as it came public. Warren Buffett liked the proposition of replacing these struggling retailers, paying below-market rents, with new tenants at higher rates so much that he bought shares in Seritage for his personal portfolio. The uptick in rent is huge, by the way, with Sears Holdings paying around $4 a square foot and new leases in the most recent quarter inked at around $17.
That said, Sears' brands still make up a big piece of the top line. Which is why it's so interesting that Seritage recently inked a deal with Buffett's Berkshire Hathaway for access to as much as $2 billion in liquidity. Basically, Seritage was preparing for a Sears Holdings bankruptcy, lining up the cash it would need to continue upgrading older properties, a process that can take up to two years. In the short term, Seritage will face some headwinds because of Sears' bankruptcy, but the long-term story that drew Buffett to the stock hasn't changed.