Warren Buffett is easily one of the greatest investing minds of our generation. Aptly nicknamed the "Oracle of Omaha," Buffett has grown his own net worth from around $10,000 in the mid-1950s to nearly $87 billion as of this past weekend. Further, Buffett's company, Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B), has created more than $400 billion in market value for its shareholders over the years, which isn't too shabby.
Buffett continues to make money for himself and his investors two ways. First, Berkshire Hathaway has acquired approximately five dozen businesses from a variety of industries and sectors that contribute to its top- and bottom-line operating results. Secondly, Buffett and his team are investors, with a current portfolio of 48 securities that's worth close to $239 billion.
However, Buffett is sitting on a record amount of cash at the moment -- $128.2 billion, to be exact -- after forgoing a major acquisition for 3.5 years, and Wall Street wants to know how the Oracle of Omaha will spend it. If I were in Buffett's shoes, here are three companies I'd consider buying outright or investing in.
If there's one thing that's crystal clear about Buffett's investing strategy, it's that he likes easy-to-understand, no-nonsense businesses that just make money. This is why he's a big believer in the banking industry, and why consumer staples have historically represented a good chunk of Berkshire's overall portfolio. With that being said, I believe Waste Management (NYSE:WM) is just the type of company that would suit Buffett well.
Although Waste Management isn't recession-proof, as its recycling operations can be negatively impacted via falling metal prices during a recession, the bulk of Waste Management's refuse business is as steady as it gets. Consumers rarely have many options when it comes to choosing a waste removal company, giving Waste Management an oligopoly or monopoly in the areas it operates.
More importantly, refuse removal is a basic need service. Whether the U.S. economy is booming or is in the depths of its worst recession in decades, homeowners and renters still need their trash picked up. This provides a degree of predictability to cash flow that doesn't exist with most companies, and is the primary reason Waste Management has been able to grow its dividend from $0.80 (for the full year) in 2005 to $2.05 per share as of 2019.
Perhaps the only reason I can think as to why Buffett wouldn't want a piece of Waste Management is the company's valuation. Shares are up almost 120% over the trailing-five-year period, and a forward price-to-earnings ratio of 24 is aggressive for a company that traditionally grows revenue at 4% to 5% a year. Nevertheless, Waste Management provides a level of predictability to cash flow that's hard to come by.
Warren Buffett is also a big fan of easily recognizable brands that are dominant within their niche. That's why I believe spice and condiment giant McCormick (NYSE:MKC) perfectly fits the bill for Berkshire Hathaway's portfolio.
One thing Buffett would appreciate about McCormick is the relative consistency of the food business. I'm not saying that food producers don't deal with pricing pressures or consumer weakness from time to time, so much as pointing out that the ebbs and flows experienced by the U.S. economy are far more subdued in an industry that's essentially a basic need good. People need to eat, and they're liable to continue buying many of the same products year in and year out, regardless of the state of the U.S. or global economy.
More specific to McCormick, it's built up one heck of an impressive portfolio of products. Aside from the products bearing the McCormick name, the company also owns Frank's RedHot and French's, which were both acquired in 2017, as well as Lawry's and Stubb's Bar-B-Q sauce. As a result, McCormick's organic sales growth has regularly outpaced its packaged-goods peers, and its operating margins have expanded rapidly in recent quarters as the company has initiated cost cuts to improve its operating efficiency.
About the only knock against McCormick is its outperformance in recent years. Shares are up 137% in a five-year stretch, placing its forward P/E ratio at nearly 31, which is historically pricey for McCormick. Then again, it's the price of admission for owning the dominant name in condiments and spices.
I know I've pounded this drum a few times recently, but if Buffett wanted to jump-start Berkshire Hathaway's portfolio with a serious growth stock, robotic-assisted surgical system developer Intuitive Surgical (NASDAQ:ISRG) is the company he should consider.
Intuitive Surgical is the clear leader in robotic-assisted surgeries, with more than 5,400 of its da Vinci systems installed worldwide. You could pretty much put all of Intuitive Surgical's competitors together and they wouldn't even come close to its installed base or the rapport that's been built up with the medical community over the past two decades.
What's more, this is a business that's designed to only get stronger over time. As the company's installed base of da Vinci systems grows, Intuitive Surgical will generate a greater amount of revenue from instrument sales with each procedure and machine servicing. Both of these revenue segments are considerably higher margin than selling the pricey da Vinci systems, which should lead to progressively higher margins over time.
Arguably the biggest reason Buffett may not be inclined to dive into a company like this is that he's shied away from healthcare as a major investment opportunity. Plus, as a value investor, it could be difficult for Buffett to justify paying 42 times forward earning for even one of the most dominant medical device companies. But make no mistake about it, Intuitive Surgical has the competitive advantages the Oracle of Omaha looks for in an investment.