There's no denying that Warren Buffett is one of the greatest investors of our time. The Oracle of Omaha, as he's affably known, managed to grow his net worth from $10,000 in the mid-1950s to north of $87 billion today. And take note that it would actually be tens of billions of dollars higher had Buffett not generously pledged quite a bit of his fortune to charities over the years.

Yet one of the greatest investors of all time also appears to be sending mixed signals. You see, Buffett's conglomerate, Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B), ended September with a record $128.2 billion in cash on hand. This cash, while handy to have, isn't earning Berkshire Hathaway the returns that investors have come to expect. Rather, Wall Street is looking for Buffett to do what he's always done in the past: put this money to work by making acquisitions or investments.

Why hasn't Buffett been willing to spend his cash hoard? I believe there are three specific reasons.

Berkshire Hathaway CEO Warren Buffett at his company's annual shareholder meeting.

Berkshire Hathaway CEO Warren Buffett at his company's annual shareholder meeting. Image source: The Motley Fool.

1. Buffett doesn't view stocks as particularly attractive

To begin with, Buffett's actions clearly suggest that he doesn't view the stock market to be a particularly good value at the moment. Even though Buffett is no fan of timing the market, he's been touted as saying that he prefers to "buy a wonderful company at a fair price than a fair company at a wonderful price." The fact that he has not made any significant acquisitions in 3.5 years plainly implies that he doesn't view any wonderful companies as being valued at fair prices right now.

According to valuation metrics, Buffett wouldn't be wrong for potentially sticking to the sidelines. The Shiller price-to-earnings ratio -- a P/E ratio based on average inflation-adjusted earnings from the previous 10 years -- finished over 30 this past weekend. In the modern era, it's only been this high two other times: the dot-com boom of the early 2000s and last year, just before the stock market did its fourth-quarter swan dive.

While it's true that stocks tend to increase in value over time, there's no mistaking Buffett's preference for finding a good deal. 

A stethoscope lying atop a fanned pile of cash.

Image source: Getty Images.

2. He only focuses on a few sectors of the market

Another thing to remember about Warren Buffett is that he's keenly focused on only a few sectors of the market, such as financials and consumer staples. This means that while valuations might be pricey in the sectors he's following, there could be deals to be had elsewhere that he misses.

For example, Buffett has rarely been a fan of healthcare stocks, because he feels he lacks the time and knowledge to stay on top of clinical trials for drug and device makers. In fact, Berkshire Hathaway's portfolio currently holds only three healthcare companies:

  • Johnson & Johnson: Berkshire's position was almost entirely sold off years ago, with a little over 327,000 shares remaining.
  • Teva Pharmaceutical Industries: This position was added by one of Buffett's trusted investment managers and not the Oracle of Omaha himself.
  • DaVita: This dialysis center operator would be the only true healthcare stock Buffett has any confidence in at the moment.

As a whole, healthcare makes up roughly 1% of Buffett's portfolio. However, certain niches within the S&P 500 healthcare sector, such as biotechnology, healthcare distributors, and healthcare services, are valued at their lowest forward P/E ratios in years. 

An assortment of spices laid out on a counter.

Image source: Getty Images.

3. He wants a needle-mover acquisition

Third, Buffett has been clear that he's only after needle-mover acquisitions. In other words, he's not really on the lookout for start-ups or small-cap stocks to invest in or acquire. Rather, he wants an acquisition to have an immediate and notable impact on Berkshire's top and bottom lines.

What might Buffett buy? Well, that's the $64,000 question that I tried to answer a little more than a week ago.

One possible no-brainer investment for Buffett might be spice and condiment giant McCormick (NYSE:MKC). The drawback, if there is one, is that this is a company trading for an aggressive forward P/E ratio relative to its growth rate. Then again, McCormick's pricey valuation is reflective of its business outperforming. Remember, this is a company with an impressive portfolio of brands that's been able to make smart, earnings-accretive acquisitions, as well as reduce costs through synergies to boost its operating margins. The spice and condiment industry is relatively predictable, and Buffett's a big fan of reliable cash flow.

I'd also be a big fan of Buffett or his team considering a company in the healthcare sector, which is relatively inexpensive in relation to its long-term growth prospects and recession-resistant nature (i.e., we don't get to determine when we get sick, or what ailment we develop). In particular, I've beaten the drum on robotic-assisted surgical system developer Intuitive Surgical (NASDAQ:ISRG) of late. Intuitive Surgical may not be cheap, but it has quite the moat. That's because the company's highest margins are realized from the instruments sold with each procedure, as well as the servicing provided with its systems. As Intuitive Surgical's installed base grows, so will the company's margins over time.

Regardless of what Buffett does decide to do with Berkshire Hathaway's cash hoard, Wall Street would simply prefer he do it sooner rather than later.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.